Adding a currency hedge to an international portfolio can help reduce this risk while still maintaining diversification benefits and exposure to potential growth opportunities outside the U.S. Exchange-traded funds (ETFs) offer a convenient, low-cost way to potentially hedge the currency risk of your international investments. Indeed, investor interest has been remarkably strong during this recent cycle: Over the past three months, more than $15 billion flowed into currency-hedged ETFs (Source: Bloomberg and iShares).
Currency hedging from a leading provider
Is hedging right for you? Currency volatility tends to smooth out over time, so it may not be necessary for your broad, long term building block positions. But if you take a more active view or hold more precise international exposures, then hedging through an ETF may be a sensible addition to your tactical investment strategy.
To position and potentially cushion your international holdings against currency risk, dollar-based investors can consider currency hedged versions of five iShares flagship international funds, including the iShares Currency Hedged MSCI EAFE ETF (HEFA), the iShares Currency Hedged MSCI EMU ETF (HEZU) and the iShares Currency Hedged MSCI Germany ETF (HEWG).
Daniel Gamba, CFA, is Managing Director and head of BlackRock’s iShares Americas Institutional Business. He is also a member of BlackRock’s Global Operating Committee. He is a regular contributor to The Blog and you can read more of his posts here.