Investors can use a hedged-equity exchange traded fund to capture foreign growth opportunities while mitigating currency risks as other developed countries implement their own quantitative easing programs to stimulate their economies.
On the recent webcast, The Importance of Currency Hedging in a Strong Dollar Environment, Carl Noble, Senior Investment Analyst for Pinnacle Advisory Group, points out that liquidity through quantitative easing has been a powerful driver of growth, fueling the rally in the U.S. equities market over the past five years.
Consequently, Noble contends that similar monetary policy changes could also support a growth opportunity in other overseas markets where central banks have been cutting rates and raising quantitative easing, such as the European Central Bank and Bank of Japan.
Rod Smyth, Chief Investment Strategist at Riverfront Investment Group, and Chris Konstantinos, Director of International Portfolio Management for Riverfront Investment Group, both agree that QE in the other developed markets could help their respective economies.
ECB president Mario Draghi has stated on Thursday that they will not enact a bond purchasing program until next year. Smyth argues that the Eurozone will need to add quantitative easing program to get itself out of the ditch. Konstantinos added that the ECB is currently failing miserably with its inflation mandate, which leaves the central bank with a lot of room for further policy changes. [Time is Right for Currency Hedged ETFs]
Nevertheless, once the QE kicks in, the Riverfront strategists believe the added liquidity will translate to improved growth in earnings.
“Best earnings recovers are in US and Japan, where central banks have engaged in widespread quantitative easing,” according to the Riverfront strategists.