ETFdb Logo
  • ETF Database
  • Channels
    • Themes
      • Active ETF
      • Alternatives Channel
      • Artificial Intelligence
      • China Insights
      • Climate Insights
      • Core Strategies
      • Crypto
      • Disruptive Technology
      • Energy Infrastructure
      • ETF Building Blocks
      • ETF Education
      • ETF Investing
      • ETF Strategist
      • Faith-Based Investing
      • Financial Literacy
      • Fixed Income
      • Free Cash Flow
      • Innovative ETFs
      • Invest Beyond Cash
      • Leveraged & Inverse
      • Modern Alpha
      • Portfolio Strategies
      • Tax Efficient Income
    • Asset Class
      • Equity
        • U.S. Equity
        • Int'l Developed
        • Emerging Market Equities
      • Alternatives
        • Gold/Silver/Critical Materials
        • Crypytocurrency
        • Currency
        • Volatility
      • Fixed Income
        • Investment Grade Corporates
        • US Treasuries & TIPS
        • High Yield Corporates
        • Int'l Fixed Income
    • ETF Ecosystem
    • ETFs in Canada
    • Market Outlook
    • Crypto ETF Hub
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Database Categories
    • Indexes
    • Scenario Analysis
    • Watchlists
    • Head-To-Head ETF Comparison Tool
    • Mutual Fund To ETF Converter
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • Gaining Perspective Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Currency Hedged ETFs
  2. Consider Currency-Hedged ETFs for Emerging Markets Bull-Run
Currency Hedged ETFs
Share

Consider Currency-Hedged ETFs for Emerging Markets Bull-Run

Stoyan BojinovOct 27, 2015
2015-10-27

The decision to invest in emerging markets can be quite daunting. Investors are first faced with deciphering the economic environment, and then with picking a “best fit” ETF for their objective.

To address the challenge of investing in emerging markets, you really need to break down the question into two parts; first, you need to consider an approach that can aid long-term investors in timing their EM ETF purchases. Second, investors should consider whether a currency-hedged strategy is right for their desired EM exposure.

When Should You Invest in Emerging Markets?

This is no easy question to answer because it’s inherently rooted in market timing. Nonetheless, there is historical research that could aid your decisions as to when you should buy and/or sell emerging-markets equities. According to research compiled by Credit Suisse, there are some noteworthy findings that will help answer the question, “When is the best time to buy emerging markets?”

Consider the image below which showcases how various rotation strategies have performed across developing markets for nearly four decades:


Content continues below advertisement

EM equity rotations

At first glance, the results are not at all intuitive. For instance, few would guess correctly that the countries with the lowest “past GDP growth” would end up grossly outperforming those with the highest growth. The currency factor is also worth highlighting; in the case of emerging markets, it appears that investing in the countries with the weakest currency has yielded far better returns that investing in those that boast the strongest local currency.

The ultimate takeaway is that the market tends to reward those who are capable of investing when uncertainty levels are high. In other words, it pays to be a contrarian investor in the case of emerging markets. Furthermore, some of the most compelling factors to consider when evaluating countries are the following:

  • Dividend Yield: Higher yield has corresponded with stronger future returns.
  • Currency Returns: Weaker local currency has corresponded with stronger future returns.
  • Past GDP Growth: Dismal economic growth in the past has corresponded to stronger future returns.

For instance, it takes quite a bit of conviction to buy a country with negative GDP growth in lieu of one that is rapidly expanding; however, as the image above reveals, contrarian investors are often rewarded, and especially so over the long haul.

Currency Hedging in EM Stocks

There’s a host of factors to consider when deciding whether or not you should opt for a currency-hedged ETF in lieu of a traditional, unhedged one once you’ve already made the decision to invest overseas. Consider the following:

Expectations

Do you have a strong conviction that the U.S. dollar will appreciate over the next month? How about over the next year? If so, you should utilize a currency-hedged ETF because that way you can combine your currency expectations with your desired EM exposure.

Risk Tolerance

If you don’t even want to consider the implications of currency market fluctuations on EM stocks, then a currency-hedged ETF might be right for you. For conservative investors who are altogether hesitant to diversify into overseas equities, a currency-hedged approach is highly recommended so they can at least get their “feet wet.”

Time Horizon

For investors with a long horizon ahead of them, and the ability to stomach volatility along the way, the unhedged currency approach might be more ideal. The reason is simple: local currency returns are a major driver of total return in foreign markets, and over a very long-term period this can serve as a major tailwind.

Cost

If you’re a cost-conscious investor, then currency-hedged ETFs might not be right for you since they charge higher management fees than their unhedged counterparts.

Ways to Play

See this list of All Currency-Hedged ETFs.

You can also slice and dice the currency-hedged universe by region or country, if you like, using the ETF Database screener. Start here with a list of all currency-hedged ETFs.

Be sure to also check out the Currency-Hedged ETFs content center for all the latest analysis and education on the topic.

The Bottom Line

Take the time to consider whether you are making an allocation to emerging markets at an appropriate time, both relative to your own objectives as well as the global economic environment at hand. Once you’ve made the decision to diversify into overseas markets, be sure to consider currency-hedged equity ETFs because they might align better with your overall strategy.

Follow me @SBojinov.

Image courtesy of sscreations at FreeDigitalPhotos.net

» Popular Pages

  • Tickers
  • Articles

Jun 23

Central Bank Gold Buying Recedes, But Not Likely to Falter

Jun 23

Weekly Economic Snapshot: Spending Slowdown & Industrial Dip

Jun 23

Double-Leverage Bitcoin's Rise With This Crypto Industry ETF

Jun 23

ETF Records Were Made to Be Broken

Jun 23

Get the Skinny on This Alternative Income ETF

Jun 20

Main Management Market Note: June 20, 2025

Jun 20

Treasury Yields Snapshot: June 20, 2025

Jun 20

S&P 500 Snapshot: Index Down for Second Straight Week

Jun 20

AVEM Hits $10 Billion Milestone Amid Rising EM Demand

Jun 20

Gold Miner ETFs Keep Rallying, But Investor Demand Lags

USO

United States Oil Fund LP

QQQ

Invesco QQQ Trust Series I

VOO

Vanguard S&P 500 ETF

UCO

ProShares Ultra Bloomberg...

IVV

iShares Core S&P 500 ETF

GLD

SPDR Gold Shares

SHLD

Global X Defense Tech ETF

SPY

SPDR S&P 500 ETF Trust

SCHD

Schwab US Dividend Equity ETF...

ITA

iShares U.S. Aerospace &...

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2025 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X