Specifically, Oliver calculated that a MSCI EAFE basket could help currency hedgers earn a positive carry of 2.38% since U.S. rates are higher than foreign rates.
“This means that in developed markets you currently earn 2.38% carry to hedge, get reduced volatility and get potential mitigation from our forecast that the U.S. dollar will continue to rise,” Oliver added.
A rebounding dollar or weakening overseas currencies are likely to help currency hedged exchange traded funds, such as the Xtrackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF). As the U.S. dollar strengthens, foreign currencies would depreciate. If an investor holds a foreign stock that is denominated in the local currencies, a weaker foreign currency would translate to a lower USD-denominated return on that foreign equity exposure. DBEF provides exposure to equity securities in developed international stock markets, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and non-U.S. currencies.
Additionally, something like the Xtrackers MSCI Emerging Markets Hedged Equity ETF (NYSEArca: DBEM) can provided a currency hedged way to access the emerging markets in case the U.S. dollar continues to strengthen.
For more information on the currency hedging strategy, visit our currency-hedged ETFs category.