With the U.S. dollar recently gaining strength against a basket of major developed market currencies, including the euro, investors may want to revisit currency hedged exchange traded funds, including the X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ).
DBEZ “seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI EMU IMI U.S. Dollar Hedged Index. DBEZ offers investors purer access to Eurozone equities while seeking to mitigate exposure to currency fluctuations between the U.S. dollar and the euro,” according to DWS.
With the Federal Reserve looking to hike interest rates and the U.S. economy continuing to strengthen, the U.S. dollar’s recent decline could be quickly pared and even push higher, potentially weakening foreign equity returns once currency fluctuations are taken into account. The Fed has already boosted borrowing costs once this year and some market observers believe that number could reach four by the end of the year.
Reasons To Focus On The Eurozone
Data indicate European stocks, particularly those in the Eurozone, are attractively valued compared to other developed markets. That includes Germany, the largest Eurozone economy.
“We moved to an overweight position on Germany given the record levels of exports that the German economy is currently producing, coupled with a still relatively attractive valuation to the U.S.,” according to recent DWS research.