As investors diversify with overseas market exposure, investors can utilizes exchange traded funds to capture foreign equities and mitigate potential foreign exchange risks.
On the upcoming annual ETF Virtual Summit, an online conference experience hosted by ETF Trends and RIA Database on January 21, financial advisors will be able to glean various global investment strategies, including hedged-equity exchange traded funds that provided targeted exposure to overseas markets while hedging currency risks.
For instance, the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) and recently launched Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ) can target the Japanese and Eurozone equities markets, respectively, while hedging against any further depreciation in their respective currencies. [Another ETF Option for Profiting From the Euro’s Slide]
Alternatively, something like the DeutscheX-trackers MSCI EAFE Hedged Equity Fund (NYSEArca: DBEF) takes on an even broader exposure, tracking developed Europe, Australasia and Far East countries. [An EAFE ETF to Capture Overseas Growth, Hedge Forex Risks]
Supporting the Japan and Eurozone outlook, their central banks have been enacting more aggressive monetary policies to help lift their economies out of a slump. The added accommodative measures should promote economic growth and lift company earnings. However, due to the increased liquidity, the Japanese yen and euro currencies are being devalued against the U.S. dollar.
Investors with foreign equity exposure are also exposed to currency risks. Since the equity exposure is denominated in local currency, any depreciation would translate to a lower U.S.-dollar return. However, the equity-hedged ETFs help diminish any blow back from a weaker foreign currency or stronger U.S. dollar. [A Hedged ETF Provides a Better Way to Access Japan]
In Japan, the cheaper yen, along with low oil prices – the country has increased imports after closing down its nuclear plants, could help bolster per share profits, writes Stephen Harner for Forbes. The government, namely the Government Pension Investment Fund, will also be shifting into exchange traded securities and Japanese equities to help bolster the markets as well.
Despite some risks in the Eurozone, like problems with Greece, European company earnings still have the potential to rebound, writes Virginia Harrison for CNN Money. Darrell Cronk, of Wells Fargo Investment Institute, argues that European companies can generate their strongest earnings growth in over a decade.
Moreover, many are looking overseas at cheaper investment options as U.S. valuations become stretched if not fairly valued. For instance, DBJP shows a price-to-earnings of 15.2 and a price-to-book of 1.2 and DBEF has a 15.6 P/E and a 1.6 P/B. In contrast, the SPDR S&P 500 ETF (NYSEArca: SPY) has a 17.3 P/E and a 2.5 P/B.
Advisors interested in attending the upcoming ETF Virtual Summit on Wednesday, January 21 can register here.