Nevertheless, potential investors should be aware that currency-hedged ETFs may underperform non-hedged strategies during periods when the USD is weakening or foreign currencies strengthen.
“In the seven years through December 2007, a falling U.S. dollar provided a boost to foreign equity funds,” according to Morningstar analyst Patricia Oey. “Over that time period, the unhedged MSCI EAFE Index outperformed the MSCI EAFE 100% Hedged to USD Index by 400 basis points, annualized.”
Additionally, investors should be aware that over long periods, risk-adjusted annual returns on hedged foreign stock portfolios have shown relatively similar risk-adjusted returns to unhedged foreign stock portfolios. Consequently, over the long-term, investors should worry less about currency movements as global currencies follow more cyclical movements – no single currency appreciates or depreciates indefinitely against other foreign currencies.
For more information on currency-hedged strategies, visit our currency hedged ETFs category.
Max Chen contributed to this article.