As the strengthening U.S. dollar currency threatens the value of global equity positions for U.S. investors, currency-hedged exchange traded funds have become a popular way for people to gain foreign exposure and easily hedge currency risk.

On the upcoming webcast, Benchmarks Matter When Hedging Currency, Sebastien Galy, Director of Foreign-Exchange Strategy at Deutsche Bank, Mark Eicker, Chief Investment Officer at Sterling Global Strategies, Anil Rao, V.P. of Index Applied Research at MSCI Inc., and Sean Edkins, Director and ETF RVP for Deutsche Asset & Wealth Management, help explain how the currency-hedging strategy works and the alternative indexing methodology behind the increasingly popular smart-beta ETF plays.

If a foreign currency depreciates, or the U.S. dollar appreciates, foreign currency-denominated equities will have a lower USD-denominated return. Consequently, a number of currency-hedged ETFs have accumulated large inflows as investors diversify away from U.S. markets but seek a way to mitigate currency risks associated with international equities.  [ The Rise of Currency-Hedged ETFs]

For instance, the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF) is the second most popular currency-hedged ETF option this year, attracting over $13.0 billion in net inflows year-to-date.

DBEF has been a popular way for investors to diversify into international developed Europe, Australasia and Far East, or EAFE countries, including Japan 21.8%, United Kingdom 20.7%, France 10.0%, Switzerland 9.5%, Germany 8.8%, Australia 6.5%, Spain 3.6%, Singapore 3.1%, Netherlands 3.0% and Hong Kong 2.8%, among others.

DBEF has been outperforming the benchmark MSCI EAFE Index. Year-to-date, DBEF rose 4.3% while the iShares MSCI EAFE ETF (NYSEArca: EFA), which tracks the non-hedged MSCI EAFE Index, gained 2.0% higher. With the U.S. Dollar Index up 5.0% this year, DBEF may have provided a purer play on the EAFE markets as opposed to the funds that track the unhedged MSCI EAFE Index, which saw returns lowered by weaker currencies.

Looking ahead, while the Federal Reserve may push off on an interest rate hike, the U.S. central bank remains committed to hiking rates by the end of the year, which has many market observers anticipating a December monetary policy change. Consequently, the U.S. dollar may still continue to appreciate against foreign currencies once the Fed tightens its policy.

Financial advisors who are interested in learning more about smart-beta, currency-hedged index strategies can register for the Tuesday, October 12 webcast here.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.