BlackRock’s (NYSE: BLK) iShares unit, the world’s largest issuer of exchange traded funds, today expanded its lineup of currency hedged ETFs with the debut of the iShares Currency Hedged MSCI Emerging Markets ETF (NYSEArca: HEEM).
HEEM, which charges 0.78% per year, tracks the MSCI Emerging Markets 100% USD Hedged Index. The new ETF will compete directly with the Deutsche X-trackers MSCI Emerging Markets Hedged Equity Fund (NYSEArca: DBEM), which is three years old.
Currency hedged ETFs have been soaring in popularity for nearly two years with the asset class getting an initial lift from Prime Minister Shinzo Abe’s ascent to power in Japan, which led to a sharp decline in the yen against the U.S. dollar. The utility of currency hedged ETFs has expanded, aiding massive inflows, this year with the European Central Bank unveiling a more accommodative monetary policy and as investors have become more comfortable with the idea of a stronger U.S. dollar. [The Time is Right for Hedged Currency ETFs]
HEEM is the second currency hedged ETF introduced by iShares in recent months, following the iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU), which debuted in July. 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). [New Global ETFs Debut]
iShares’ currency hedged lineup is gaining a following among institutional investors due in part to the deep liquidity of the underlying iShares ETFs in which the hedged products invest. Earlier this year, HEWG, which invests in the highly liquid iShares MSCI Germany ETF (NYSEArca: EWG), the largest Germany ETF, using currency forward contracts to hedge dollar/euro exposure, was able to absorb a $40 million buy order at a bid/ask spread of three cents when the ETF had just $2.5 million in assets under management. [A Refined Approach to Global ETFs]
“Recent events in the global economy signal an opportunity for currency hedged iShares. Central banks are diverging in monetary policies, with the ECB becoming more accommodative – weakening the Euro – while in the U.S. a looming increase in rates strengthens the dollar. iShares Currency Hedged ETFs offer an efficient and cost-effective solution in a single transaction, so investors don’t have to manage complex currency hedging strategies,” said Daniel Gamba, head of iShares Americas institutional business at BlackRock, in a statement.
Top country weights in the MSCI Emerging Markets 100% USD Hedged Index include almost 19% to China, 16% to South Korea and nearly 12% to Brazil.
ETF Trends editorial team contributed to this post.