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.
HEWG also includes a large weight to another iShares ETF, the iShares MSCI Germany ETF (NYSEArca: EWG), and a small position in forwards. The new iShares offering will be competing against the db X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR) and he WisdomTree Germany Hedged Equity Fund (NasdaqGS: DXGE), which both track a currency hedged equity index.
HEFA includes a large position in the e iShares MSCI EAFE ETF (NYSEArca: EFA), along with currency forwards to hedge risk. The iShares fund will be up against the db X-trackers MSCI EAFE Hedged Equity Fund (NYSEArca: DBEF). The EAFE include developed Europe, Australasia and Far East countries, or developed markets outside of North America.
The space is heating up and investors will benefit from increased choice. For instance, due to the greater competition, Deutsche Asset & Wealth Management recently announced a fee cut on DBJP and DBGR to 0.45% from 0.50%. DBEF’s expense ratio will stay at 0.35%. In comparison, HEWJ has a 0.48% expense ratio, HEWG has a 0.53% expense ratio and HEFA comes at a 0.39%. [Deutsche Pares Fees on Germany, Japan Currency Hedged ETFs]
For more information on international markets, visit our global ETFs category.