When it comes to currency hedged exchange traded funds, Japan funds, such as the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP), have been joined in the limelight this year by a previously unheralded crop of ETFs that exploit dollar strength against developed market rivals.
The WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ), Deutsche X-Trackers MSCI Europe Hedged Equity ETF (NYSEArca: DBEU) and the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF) have each not only proven to be prolific asset gatherers this year, but, more importantly, capable of generating superior returns relative to their unhedged counterparts. [Falling Currencies Buoy This ETF]
The currency hedged phenomenon can be applied to emerging markets ETFs as well and with emerging Asian currencies weakening, now could be the time for investors to consider the Deutsche X-trackers MSCI Emerging Markets Hedged Equity ETF (NYSEArca: DBEM).
Confirming that currency hedging is potent with emerging markets just as it is with Japan and Europe, DBEM is 2.3% over the past 90 days, which compares favorably with the average 6.1% loss for the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) over the same period.
With emerging Asian currencies looking flimsy against the U.S. dollar, DBEM looks like a solid near-term emerging markets bet. [Currency Hedging Makes Sense With EM ETFs]
“A stronger US Dollar and weaker Asia FX is a clear talking point among investors as a ‘go with’ theme heading into 2015. The much weaker than expected inflation data in Singapore and Vietnam are just symptoms of a larger issue developing,” said Rareview Macro founder Neil Azous in a recent research note.
Since its September peak, the Bloomberg-JPMorgan Asia Currency Index (ADXY), a spot index of emerging Asia’s most actively traded currency pairs valued against the U.S. dollar, has lost over 2% and could be showing signs of rolling over.