Low yields have plagued fixed income investors looking to use safe haven debt as a reliable income source. Now, they’re turning to other avenues for yield, such as currencies, but the question remains whether it could supplant bonds in this low-yield environment?
“Investors are debating whether to engage more actively in currency trading as government bonds offer scanty yields, raising doubts over their ability to act as safe havens,” a MarketWatch article noted. “As monetary policy makers slash interest rates to rock-bottom levels and even emerging market central bankers start to play with quantitative easing, the frequency and strength of rallies in government bond markets, necessary to offset selloffs in equities, have diminished.”
“In developed markets where rates go to zero, yields have lost a lot of that diversification,” said Clifton Hill, global macro portfolio manager at Acadian Asset Management, in an interview.
A Part of Currency Hedging ETFs
Currency hedging ETFs give investors the strategy of minimizing currency-related risk in an ETF wrapper. Here are a couple of funds to consider:
- FlexShares Currency Hedged Morningstar DM ex-US Factor Tilt Index Fund (TLDH): Tseeks investment results that correspond to the price and yield performance, before fees and expenses, of the Morningstar® Developed Markets ex-US Factor Tilt Hedged IndexSM. The index reflects the performance of a selection of companies that, in aggregate, possess greater exposure to size and value factors relative to the Morningstar Developed Markets ex-US Index, and hedges the currency-related risk of the securities included in the index against the U.S. dollar on a monthly basis. The fund invests at least 80% of its total assets in the securities of the index and in ADRs and GDRs based on the securities in the index.
- FlexShares Currency Hedged Morningstar EM Factor Tilt Index Fund (TLEH): seeks investment results that correspond to the price and yield performance, before fees and expenses, of the Morningstar® Emerging Markets Factor Tilt Hedged IndexSM. The index (i) reflects the performance of a selection of companies that, in aggregate, possess greater exposure to size and value factors relative to the Morningstar Emerging Markets Index, and (ii) hedges the currency-related risk of the securities included in the index against the U.S. dollar on a monthly basis. The fund invests at least 80% of its total assets in the securities of the index and in ADRs and GDRs based on the securities in the index.
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