While holding on to overseas assets, U.S. investors will be exposed to currency fluctuations, which can negatively impact overall returns and add to portfolio risks. If a foreign currency depreciates against the U.S. dollar, the foreign asset will have a lower return when converted back into USD. Consequently, investors seeking a more pure play on the underlying foreign markets can utilize a currency-hedged investment to diminish currency risks.
However, potential investors should keep in mind that while these currency-hedged ETFs may outperform a non-hedged fund if the local currencies depreciate against the USD, a non-hedged fund may outperform the currency-hedged ETFs if the USD weakens against the foreign currencies.
For more information on new fund products, visit our new ETFs category.
Money managers who are looking into constructing their own ETFs may also be interested in attending the second annual ETF Boot Camp in New York next month. Whether you’re an ETF start-up, fund company, broker dealer, pension plan, endowment, private equity firm, fund board independent director, 401k plan provider or ETF industry executive…this conference is designed for you. This one-of-a-kind event will condense everything you need to know about the inner workings of the ETF business into two days.
Max Chen contributed to this article.