Expanding upon its popular currency-hedged foreign equity strategies, BlackRock (NYSE: BLK) iShares is working on a slew of currency-hedged adaptations of its global and country-specific exchange traded funds.
In anticipation of a strengthening U.S. dollar in response to Federal Reserve rate hikes ahead and loose-monetary-policy-fueled growth abroad, iShares is crafting currency-hedged versions of a number of its long-standing ETFs:
- The iShares Currency Hedged MSCI United Kingdom ETF will act as the currency-hedged version of the iShares MSCI United Kingdom ETF (NYSEArca: EWU).
- The iShares Currency Hedged MSCI Switzerland ETF will act as the currency-hedged version of the iShares MSCI Switzerland Capped ETF (NYSEArca: EWL).
- The iShares Currency Hedged MSCI Spain ETF will act as the currency-hedged version of the iShares MSCI Spain Capped ETF (NYSEArca: EWP).
- The iShares Currency Hedged MSCI South Korea ETF will act as the currency-hedged version of the iShares MSCI South Korea Capped ETF (NYSEArca: EWY).
- The iShares Currency Hedged MSCI Mexico ETF will act as the currency-hedged version of the iShares MSCI Mexico Capped ETF (NYSEArca: EWW).
- The iShares Currency Hedged MSCI Italy ETF will act as the currency-hedged version of the iShares MSCI Italy Capped ETF (NYSEArca: EWI).
- The iShares Currency Hedged MSCI Canada ETF will act as the currency-hedged version of the iShares MSCI Canada ETF (NYSEArca: EWC).
- The iShares Currency Hedged MSCI Australia ETF will act as the currency-hedged version of the iShares MSCI Australia ETF (NYSEArca: EWA).
- The iShares Currency Hedged MSCI EAFE Small-Cap ETF will act as the currency-hedged version of the iShares MSCI EAFE Small-Cap ETF (NYSEArca: SCZ).
- The iShares Currency Hedged MSCI ACWI ex U.S. ETF will act as the currency-hedged version of the iShares MSCI ACWI ex U.S. ETF (NasdaqGM: ACWX).
- The iShares Currency Hedged MSCI ACWI ETF will act as the currency-hedged version of the iShares MSCI ACWI ETF (NasdaqGM: ACWI).
No tickers, stock exchange listings or expenses have been provided. All new planned ETFs are passively managed and track MSCI Indices hedged to the USD.
According to their respective Securities and Exchange Commission filings, the currency-hedged ETFs will invest at least 90% of assets in the related non-hedged iShares ETFs. Additionally, the currency-hedged ETFs will included foreign currency forward contracts at a one-month rate designed to hedge against non-U.S. currency fluctuations. The hedge is reset on a monthly basis. The new ETFs basically act as hedged versions of the originals.
“The notional exposure to foreign currency forward contracts (both deliverable and non-deliverable) will be a short position that hedges the currency risk of the equity portfolio,” according to the SEC filings. “The Fund may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents, including shares of money market funds.”
When investing in overseas markets, U.S. investors are typically at risk to changes in the foreign exchange market – if the U.S. dollar strengthens or foreign currencies depreciate against the dollar, foreign-currency-denominated returns are lower when converted back into U.S.-dollar terms. Consequently, hedging against the depreciating foreign currency would provide a more true performance of the target foreign market. [Foreign Borrowers Could Fuel Dollar ETFs’ Rally]