ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Direct Indexing
    • Disruptive Technology
    • Energy Infrastructure
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Financial Literacy
    • Fixed Income
    • Gold/Silver/Critical Minerals
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Modern Alpha
    • Multifactor
    • Night Effect
    • Portfolio Strategies
    • Responsible Investing
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
  • 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
    • 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. Currency-Hedged ETFs and Why They Matter
Currency Hedged ETFs
Share

Currency-Hedged ETFs and Why They Matter

Bob CiuraNov 02, 2015
2015-11-02

Hedging is one of the best ways for an investor to protect their portfolio from currency risk, which is the risk of an investment losing value due to fluctuations in the foreign exchange market. This is especially the case today, when the U.S. dollar has risen significantly against international currencies. The strengthening U.S. dollar has had a pronounced negative impact on investing in other parts of the world outside of the United States.

In response, many investors have hedged their portfolios against currency risk, and exchange-traded funds, or ETFs, do the same. This article will discuss why currency hedging matters, and highlight a few currency-hedged ETFs from which investors can choose.

Why Currency Hedging Matters

Fluctuating exchange rates can have a dramatic impact on an international investment, even if the underlying investment itself performs well. For example, if an international investment returns 5% in a given period, but the U.S. dollar strengthens 6% against that investment’s local currency, then the investment will actually lose 1% of its value.

This is why many ETF issuers have created currency-hedged ETFs. These currency-hedged ETFs often use derivatives to protect investors against currency risk. To mitigate currency risk, currency-hedged funds hold their unhedged counterpart plus currency forwards.


Content continues below advertisement

Currency-Hedged ETFs

Let’s take a look at some of currency-hedged ETFs based on broad geographic markets. For investors interested in investing in the eurozone, WisdomTree offers the WisdomTree Europe Hedged Equity Fund (HEDJ B), which has returned 12.34% year-to-date. This ETF is similar to the iShares MSCI Eurozone ETF (EZU B+) but also employs derivatives to hedge against currency risk. The HEDJ fund has outperformed the EZU fund by more than 11 percentage points year-to-date. This demonstrates the positive effect that currency hedging can produce for investors when the U.S. dollar strengthens.

This disparity is equally strong when it comes to the emerging markets, which can exhibit even greater levels of currency risk than developed nations. For example, the Vanguard Emerging Markets ETF (VWO A+) has declined 9.09% year-to-date. A currency-hedged alternative with similar holdings is the iShares Currency Hedged MSCI Emerging Markets ETF (HEEM). This ETF is down a more modest 4.37% year-to-date. Once again, currency hedging has produced about five percentage points of outperformance.

Another key aspect of currency-hedged ETFs is that their expense ratios are fairly low. Both the HEDJ and HEEM exchange-traded funds carry expense ratios of 0.58% and 0.68% per year, respectively.

The Bottom Line

Currency hedging is a very important topic right now as investors can suffer poor returns due to currency risk. When investing in international markets through ETFs, currency-hedged variations allow investors to protect their portfolios from that risk. The HEDJ and HEEM ETFs are two examples of currency-hedged ETFs that may outperform their non-hedged counterparts if the U.S. dollar continues to strengthen in the months ahead.

For more currency-hedged ETFs, please have a look at our list here.

Image courtesy of ddpavumba at FreeDigitalPhotos.net

» Popular Pages

  • Tickers
  • Articles

Jun 06

Fidelity Thematic Funds to Convert Within Two Weeks

Jun 06

Investors Increasingly Prefer SPYI for Income

Jun 06

ETF Prime: Tom Lydon Discusses Advisor Polling Data

Jun 06

Is Your Portfolio Ready for Economic Weakening?

Jun 06

4 Top-Performing Real Estate ETFs to Consider

Jun 06

Invesco Changes Tickers for Its Equal-Weight Sector ETFs

Jun 06

Invesco’s S&P 500 Quality ETF Crosses $1 Billion in Flows

Jun 06

Looking Into Blue Chip Growth ETF TCHP

Jun 06

Target Precise Fixed Income Exposure While Yields Are Up

Jun 06

The Dow, S&P 500, and Nasdaq Since Their 2000 Highs

QQQ

Invesco QQQ Trust

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

VGT

Vanguard Information...

IYW

iShares U.S. Technology ETF

JEPI

JPMorgan Equity Premium...

SCHD

Schwab US Dividend Equity ETF...

BOTZ

Global X Robotics &...

XLK

Technology Select Sector SPDR...

SMH

VanEck Semiconductor ETF

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
  • © 2023 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