The IQ 50 Percent Hedged FTSE Europe ETF is benchmarked to the FTSE Developed Europe 50% Hedged to USD Index, which is made up of equities from 17 developed European countries. HFXE also features Nestle and Novartis among its top five holdings along with Roche, HSBC (NYSE: HBC) and Sanofi (NYSE: SNY). [A Return to Euro Hedged ETFs]
The U.K. holds a dominant position in HFXE, commanding a 32.2% weight. That is more than double the fund’s allocation to French stocks (14.2%). Switzerland chimes in at 14.1%, followed by Germany at 13.4%.
The IQ 50 Percent Hedged FTSE Japan ETF tracks the performance of the FTSE Japan 50% Hedged to USD Index, which is made up of Japanese equities. HFXJ’s top five holdings include Toyota, Mitsubishi UFJ Financial and Honda Motor (NYSE: HMC).
While the 50% hedged approach may appear novel, historical data suggests it will work. Citing a whitepaper authored by Robert Whitelaw, IndexIQ’s Chief Investment Strategist and Professor of Entrepreneurial Finance and Chair of the Finance Department at New York University’s Stern School of Business, IndexIQ notes that “between 2005 and 2014, there were five calendar years when the value of a basket of foreign currencies decreased versus the U.S. dollar (a situation when a currency hedged approach would have provided better returns) and five calendar years when the value of that same basket of currencies increased versus the U.S. dollar (when an unhedged approach would have provided better returns).” [Momentum for Currency Hedged ETFs]
HFXI charges 0.35% per year while HFXE and HFXJ charge 0.45% a year.