For example, the SPDR® EURO STOXX 50® Currency Hedged ETF [HFEZ] seeks to provide investors with a vehicle to capture the potential benefits that Eurozone equities may reap from QE, with a cyclical tilt, while seeking to limit negative potential impact for the euro currency due to those same central bank policies.
Two new SPDR ETFs, SPDR S&P International Dividend Currency Hedged ETF [HDWX] and the SPDR MSCI International Real Estate Currency Hedged ETF [HREX], are expanding investors’ hedging tool kit, offering more precise instruments for attempting to manage currency risk within income producing market segments.
For Investment Professionals who want to learn more about currency-hedged ETFs, you can log on to spdrs.com and read our new piece, Currency Hedging in the Time of Divergent Macroeconomic Policies.
Definitions
Currency Forward Contracts
A binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. A currency forward is essentially a hedging tool that does not involve any upfront payment.
1Bloomberg, Currency Hedged ETFs have taken in 46B YTD of inflows as of 9/9/2015
2“Casualties From Swiss Shock Spread From New York to New Zealand”, Bloomberg.com, as of 1/15/2015
3Cornerstone Macro Research, as of 7/31/2015
4Cornerstone Macro Research, as of 7/31/2015
5Bloomberg, International Focused ETFs have taken in 86B of fund flows YTD which is 113% of all equity fund flows to date, as of 9/9/2015
6State Street Global Advisors
Currency hedging involves taking offsetting positions intended to substantially offset currency losses on the hedged instrument. If the hedging position behaves differently than expected, the volatility of the strategy as a whole may increase and even exceed the volatility of the asset being hedged. There can be no assurance that the Fund’s hedging strategies will be effective.
Derivative investments may involve risks such as potential illiquidity of the markets and additional risk of loss of principal.
Foreign (non-US) Securities may be subject to greater political, economic, environmental, credit and information risks. Foreign securities may be subject to higher volatility than US securities, due to varying degrees of regulation and limited liquidity. These risks are magnified in emerging markets.
Non-diversified funds invest a greater portion of assets in fewer securities and therefore may be more vulnerable to adverse changes in the market.