Diversifying an equity investment portfolio, more investors have looked into European markets. However, with a strengthening U.S. dollar and depreciating euro currency, investors should consider a hedged-equity exchange traded fund option.
In the upcoming webcast, Seeking Growth in Europe with Currency Protection, Daniel Brehon, Forex Strategist at Deutsche Bank, Michael Jones, chairman and chief investment officer at RiverFront Investment Group, and Kize Behrends, ETF Investment Specialist at Deutsche Bank for the Midwest Region, help outline the strategy behind a Europe hedged-equity investment style as the U.S. dollar strengthens against foreign currencies.
With a Europe hedged-equity ETF, such as the Deutsche X-Trackers MSCI Europe Hedged Equity ETF (NYSEArca: DBEU), investors can access European equities with diminished currency risk. DBEU includes currency forwards to hedge against a group of European currencies.
The ETF includes broad Europe exposure, with securities from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. Non-Eurozone members, the U.K. and Switzerland, make up 41.8% of the ETF’s portfolio. [Scottish Referendum Throws a Curve at U.K. ETFs]
The U.S. Federal Reserve and the Eurozone’s ECB are moving toward divergent monetary policies. The Fed is looking to cut quantitative easing and hike interest rates. Meanwhile, the ECB is cutting rates and has hinted at quantitative easing down the line to help bolster a faltering economy and reverse deflationary pressures. Consequently, if the U.S. dollar strengthens or the euro weakens, investors will see a lower U.S.-dollar denominated return out of their European equity positions.
The CurrencyShares Euro Currency Trust (NYSEArca: FXE) is off almost 2% in the past month, a situation that has worsened in recent days after European Central Bank President Mario Draghi gave his most overt hints to date that the central bank could employ quantitative easing measures to prop up flailing Eurozone economies. [This Europe ETF is Proving Durable]
Other European states could also cut rates in response to the ECB’s actions. The Danish central bank, for instance, has followed the ECB’s lead, diminishing its deposit rate to negative 0.05%, Reuters reports.
The United Kingdom, though, is witnessing its currency plunge ahead of the Scottish referendum as a vote for independence fuels uncertainty over the outlook of Scotland’s involvement with the British pound. [Scottish Referendum Throws a Curve at U.K. ETFs]
For more information on Europe, visit our Europe category.
Financial advisors who are interested in learning more about investing in Europe can register for the Wednesday, September 10 webcast here.