Investors who are interested in gaining exposure to international fixed-income assets but are wary of the negative effects of foreign exchange market swings can look to two new Deutsche Asset Management international bond currency-hedged exchange traded funds.
On Tuesday, Deutsche Asset Management launched the Deutsche X-trackers Barclays International Treasury Bond Hedged ETF (BATS: IGVT) and Deutsche X-trackers Barclays International Corporate Bond Hedged ETF (BATS: IFIX). IGVT has a 0.25% expense ratio and IFIX has a 0.30% expense ratio.
Unlike most international bond funds, the two new ETFs try to diminish the negative effects of weakening foreign currencies or a strengthening U.S. dollar. Investing in international securities exposes investors to foreign currencies. Consequently, a weakening foreign currency would usually reduce the U.S. dollar-denominated return on an international security.
The two funds will enter into forward currency contracts designed to offset their exposure to foreign currencies by selling the applicable foreign currency forward at the one-month forward rate, according to the prospectus sheet.
“During times of sharp market movements, investors are looking for stable sources of revenue,” Fiona Bassett, Head of Passive Asset Management in the Americas, said in a press release. “In our view, the currency hedging aspect of IGVT and IFIX allows investors an opportunity to preserve the reliable sources of income, stable and consistent cash flow typically associated with bond investments, decreasing the risk brought on by currency exposure.”[related_stories]