Currency Hedged ETF Flows Slow…Sort Of

Currency hedged ETFs have recently come under fire because some market observers have claimed differences in returns offered by these ETFs and their unhedged counterparts are “negligible” over the long-term.

That is true when making comparisons over decades and that lengthy time frame will include multiple strong and weak dollar environments. However, three years is also “long-term,” and over that period DBEF has outperformed the unhedged MSCI EAFE Index by 1,740 basis points. Over the same period, DXJ has offered by better than double the returns of the unhedged iShares MSCI Japan ETF (NYSEArca: EWJ).

Additionally, the recently slack inflows to currency hedged ETFs may not persist for long as further downside is expected for the euro and yen.

“The euro is forecast to fall another 7.4 percent by year-end, while the yen is predicted to decline 2.1 percent, the median estimates of analysts surveyed by Bloomberg News show,” notes Bloomberg.

Deutsche X-trackers MSCI EAFE Hedged Equity ETF