While academic research and historical data have identified factors that are important in explaining a stock’s risk and performance, they do not explain how exposure to these factors could be timed effectively. Consequently, without In compelling evidence around specific timing of the individual factor strategies, investors may consider using a diversified approach to enhance their investment portfolios.
Additionally, among the other smart beta international strategies that have outperformed, the currency-hedged methodology has also helped investors avoid the negative effects of weakening global currencies or a strengthening U.S. dollar. For instance, the Deutsche X-trackers MSCI EAFE Small Cap Hedged Equity ETF (BATS: DBES) increased 13.4% year-to-date, whereas the unhedged MSCI EAFE Small-Cap Index is up 12.7%.
DBES tries to reflect the performance of the MSCI EAFE Small Cap U.S. Dollar-Hedged Index, which includes developed market small-cap stocks but tries to negate exposure to fluctuations between the value of the USD and select foreign currencies. The hedged ETF would outperform similar non-hedged strategies if foreign currencies depreciate against the greenback.
For more information on alternative index-based strategies, visit our Smart Beta Channel.