Currency-hedged exchange traded funds are going mainstream, with more investors and financial advisors utilizing the relatively new investment strategy as a strategic portfolio position.
Europe ETFs that hedge against a depreciating euro currency have been among the best developed market investments this year. Year-to-date, the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ) gained 20.5%, iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) increased 19.6% and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) rose 20.4%.
Additionally, the euro-hedged ETFs have also attracted heavy investments this year. For instance, HEDJ saw $12.9 billion in net inflows so far this year, according to ETF.com.
According to Bank of America Merrill Lynch, financial advisors that are piling into European stock funds that diminish currency risk could continue to profit from the trade for at least a year, reports Trevor Hunnicutt for InvestmentNews.
Many have expanded over to the European markets, capitalizing off the potential growth from an aggressive European Central Bank quantitative easing program. However, the play is turning into a more mid- to long-term opportunity.
“A tactical play can be turned into a strategic play,” Jon D. Maier, who runs ETF-based portfolios for some of Merrill’s 14,000 financial advisers, said in the article. “You have a central bank and they basically tell you what to do. You know what’s going to happen.”
Specifically, the ECB has enacted a €60 billion, or $65.3 billion, monthly bond purchasing program that will infuse a planned €1.1 trillion into the European economy by September 2016. The easing program is expected depreciate the value of the euro currency and bolster the local economies.