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
  • 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. Dual Impact Channel
  2. Currency Neutrality Superior To No Hedging
Dual Impact Channel
Share

Currency Neutrality Superior To No Hedging

Tom LydonNov 02, 2022
2022-11-02

With the dollar ranking as one of the best-performing currencies in the world this year, investors are getting a refresher regarding the benefits of currency hedged exchange traded funds. Still, some experts assert that most long-term investors will be well served by unhedged ETFs over the long term. Of course, timing when the dollar will be strong or weak boils down to market timing, which is a difficult endeavor. Some exchange traded funds split the difference. Enter the IQ 50 Percent Hedged FTSE International ETF (HFXI B+).

HFXI tracks the FTSE Developed ex North America 50% hedged to USD Index. Translation: The ETF isn’t fully currency-hedged, but it’s not totally unhedged either. Currency hedging, regardless of how much a fund employs, involves the use of derivatives known as currency forwards.

“Currency forwards provide an advantage in certain environments. The future exchange rate in these contracts is tied to the interest-rate difference between the U.S. and foreign markets,” wrote Morningstar analyst Daniel Sotiroff. “Hedging adds to the total return of hedged ETFs when the U.S. interest rate is higher than those abroad. However, it subtracts from their returns when the U.S. interest rate falls below foreign rates. They also protect against changes to the outlook of interest rates in the U.S. and abroad. Recently, higher expected relative interest rates in the U.S. aided the dollar’s strong performance even before the Federal Reserve began raising rates.”

While that may sound like some complex mechanics, HFXI presents some simple truths to investors. First, the fund doesn’t require the commitment of a fully hedged ETF. Second, HFXI offers enough currency protection to outperform unhedged rivals when the dollar is strong. For example, the fund is beating the unhedged version of the MSCI EAFE Index by about 600 basis points year-to-date.

Plus, HFXI delivers these perks to investors at an annual fee of just 0.20%, or $20 on a $10,000 stake. That’s favorable within this category and can allay concerns of overpaying for fully hedged equivalent products.

“Meanwhile, unhedged ETFs tracking stocks from similar markets can be had for less than 0.10%. And there are transaction costs tied to the forward contracts that investors don’t see. Those costs are relatively small, often less than 0.20% in foreign developed markets,” concluded Morningstar’s Sotiroff.

Japan is HFXI’s largest country weight at 23.8%, while the U.K., France, and Switzerland combine for about 32%.

For more news, information, and strategy, visit the Dual Impact Channel.

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