Helping investors manage currency risk with overseas exposure, iShares recently launched its own line of currency-hedged equity exchange traded funds to provide an alternative to some of its existing global funds.
The iShares hedged-equity ETFs tracks a combination of their related unhedged parent iShares ETFs, which track MSCI indices, along with foreign currency forward contracts, writes Junius for Seeking Alpha.
The iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ), iShares Currency Hedged MSCI Germany ETF (NYSEArca: HEWG) and iShares Currency Hedged MSCI EAFE ETF (NYSEArca: HEFA) began trading Feb. 4. [iShares Tries Its Hand at Currency Hedged ETFs]
Currency-hedged equity ETFs provide investors with global exposure while hedging against depreciating local currencies in the respective regions or countries. For instance, the Fed is tightening its monetary policy, strengthening the U.S. dollar. Meanwhile, central banks in Europe and Japan are engaging in loose monetary policies in efforts to weaken the euro and yen.
A strengthening dollar would diminish returns on non-hedged foreign equity ETFs. Currency-hedged ETFs try to take away currency affects, making the investments attractive for investors who are expecting a stronger U.S. dollar or weaker foreign currency.
HEWJ currently allocations the majority of its position in the iShares MSCI Japan ETF (NYSEArca: EWJ) and a small weight in forwards. In comparison, the db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP) and the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) both track a customized currency hedged equity index.