The U.S. Dollar is up nearly 2% against the Euro this year, meaning that investors could be dealing with losses if they are not hedged properly against their investments in currencies. ETF gurus Todd Rosenbluth, of CFRA Research, and Tom Lydon, ETF Trends CEO, talked about how best to hedge currencies on CNBC with Bob Pisani this week.
Lydon said hedging using an ETF is more crucial now with the trade war between the U.S. and China, which at this point has no end in sight.
“We haven’t been to paying attention to currencies for a while. But now especially with the trade wars going on Xi talking about undervaluing the yuan, that’s gonna happen across the board. The dollar continues to be strong in the US. If you don’t head your currency with your overseas investments, you’re betting on that local currency. So why not take out that risk?” said Lydon.
Rosenbluth explained why the WisdomTree Hedged Equity Fund (HEDJ) has become less used by investors in recent years, but is currently outperforming other European ETFs.
“Well these were very popular as you mentioned a few years ago. You used to see WisdomTree commercials every minute on CNBC, and now HEDJ has bled $8 billion in the last three years. It’s now a $3 billion ETF, despite the fact as you mentioned earlier that it’s outperforming other European ETFs,” said Rosenbluth.
There is a lot of speculation about the future of stocks and the U.S. dollar, but Rosenbluth cautions investors to look at reducing their international exposure if the dollar continues to strengthen.
“Well we have to see if the dollar continues to strengthen. If it does then investors might take a closer look at wanting to reduce the volatility of their international equity portfolios,” Rosenbluth added.
Lydon sees opportunity for investors using ETFs like the iShares Currency Hedged ETF (HEEM) or the iShares Emerging Market ETF (EEM).
“If you’re looking for a valuations, everyone is talking about the great valuations, almost 40% off in PE as compared to the US. Why not look at this? But mostly if China devalues their currency emerging markets are going to follow,” Lydon added.
For more market trends, visit ETF Trends.