When you’re investing internationally, you’re betting on both equities and the local currency, too. That means Europe exchange traded funds (ETFs) may be taking a bigger hit that you might expect. With ETFs, though, you can hedge that currency risk.
The declining European stock market has been slapping equities around, while the weakness of the euro currency is finishing them off. Matt Hougan for Index Universe reminds us that total returns are the sum of market returns plus or minus currency returns. [Spain ETF Hit After Bank Failure.]
Any international equity investment is not only a bet on the market of the subject country, it is also a bet on the currency. Usually, market returns overwhelm any adverse impact of currency devaluation, but that hasn’t been the case recently with Europe and the euro falling in lockstep. [U.S. Dollar Revels As a Safe-Haven.]
There are two ETFs to help hedge an international country investment; both funds are from WisdomTree. They can help hedge currency risk out of a portfolio by giving you pure exposure to the local returns of the benchmark indexes. This feature is especially useful in this climate. [The Euro ETF Slide: How Low Can It Go?]
For more stories about the euro, visit our euro category.
- WisdomTree International Hedged Equity ETF (NYSEArca: HEDJ): This fund is two-thirds Europe (the rest is allocated to Japan, Australia, China and elsewhere in Asia).
- WisdomTree Japan Hedged Equity ETF (NYSEArca: DXJ)
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.