When crafting a diversified fixed-income investment portfolio, investors should also include international bonds. Foreign debt, though, are affected by currency fluctuations, but a currency-hedged exchange traded fund may diminish the risks.
On the upcoming webcast, Diversifying Client Income with Currency Hedged Bonds, Abby Woodham, ETF Strategist at Deutsche Asset Management, Sean Edkins, Director of ETF RVP for Deutsche Asset Management, and Matthew J. Krajna, Portfolio Manager at Nottingham Advisors, will consider the benefits of international fixed-income exposure and look to strategies that may help investors diminish foreign exchange risks when investing in overseas markets.
For instance, investors who are interested in the international debt market but are wary of forex risks can look to currency-hedged bond ETF options, like the recently launched Deutsche X-trackers Barclays International Treasury Bond Hedged ETF (BATS: IGVT) and Deutsche X-trackers Barclays International Corporate Bond Hedged ETF (BATS: IFIX).
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. Consequently, these bond currency-hedged ETFs may outperform non-hedged international bond funds if the U.S. dollar strengthens or foreign currencies depreciates. However, potential investors should be aware that the currency-hedged ETFs may underperform non-hedged funds if the foreign currencies strengthen due to their short foreign currency exposure.