Hedged currency exchange traded funds provide avenues for advisors to mitigate currency risk within client portfolios, an attractive trait when evaluating international investments.
“All investors should be moving away from the home country bias,” said Deutsche Asset & Wealth Management Managing Director Martin Kremenstein in an interview with Tom Lydon of ETF Trends at the Morningstar ETF Invest Conference in Chicago.
“When you invest internationally, you end up taking two positions. You take a position in the international asset and you’re taking a position in the currency,” added Kremenstein.
As a theme, hedged currency is soaring in popularity within the ETF industry due in large part to this year’s yen plunge, a decline that has called attention to ETFs such as the db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP).
“Japan is a very good example,” said Kremenstein. “If you invested in Japan while hedging currency exposure this year, you made closer to 40%. Currency exposure has a huge impact on returns.”
As foreign governments implement loose monetary policies and the U.S. dollar strengthens, currency-hedged exchange traded funds are becoming a popular, targeted play on international equities.