The foreign exchange markets will continue to flux up and down with volatility as traders make sense of the recent U.S. presidential election. Traders will still want to hedge their currency bets.
Fortunately, there are ETFs with this hedging component built-in. The U.S. dollar is sure to see more moves this week as traders digest the election news.
An interesting all-world play that hedges against currency fluctuations against the U.S. dollar is the Xtrackers MSCI All World ex U.S. Hedged Equity ETF (DBAW). DBAW seeks investment results that correspond generally to the performance, of the MSCI ACWI ex USA US Dollar Hedged Index, which is designed to track the performance of equity securities in developed and emerging stock markets while mitigating exposure to fluctuations between the value of the USD and the currencies of the countries included in the underlying index.
Another compelling option is the Xtrackers MSCI EAFE Hedged Equity ETF (DBEF), which seeks investment results that correspond generally to the performance of the MSCI EAFE US Dollar Hedged Index. The index is designed to track developed market performance while mitigating exposure to fluctuations between the value of the U.S. dollar and the currencies of the countries included in the underlying index.
Muting the Effects of a Downturn
One example for the need to hedge concerns the Japanese yen. What goes up must eventually come down.
“Traders unloaded Japanese yen and bought riskier currencies and the U.S. dollar on Monday as market confidence in the economy and world trade increased with progress on a COVID-19 vaccine and the prospect of Joe Biden being U.S. president,” a Reuters article noted.
“The yen JPY=D3, which had become a favored safe-haven, suffered its biggest loss against the U.S. dollar since March, with the greenback rising as much as 2.2%. So-called “risk-on” currencies, such as the Australian dollar and Norwegian krone, strengthened even more,” the article added.
In this instance, one fund to consider is the Xtrackers MSCI Japan Hedged Equity ETF (DBJP). DBJP seeks investment results that correspond generally to the performance, of the MSCI Japan US Dollar Hedged Index, which is designed to track the performance of the Japanese equity market while mitigating exposure to fluctuations between the value of the U.S. dollar and the Japanese yen.
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