The Xtrackers MSCI EAFE High Dividend Yield Hedged Equity ETF (HDEF) offers broad exposure to developed markets outside of the U.S., but with a twist: it looks for stocks that pay high dividends compared to their price, and then hedges out the currency exposure that an investment in international equities brings. This delivers isolated exposure to the performance of the underlying equities in local prices. Currency fluctuations can be a significant driver of gains and losses, and some investors may prefer the potential diversification benefit of exposure to non-U.S. dollar investments.
Investors who expect the U.S. dollar to appreciate relative to other currencies might prefer this fund as a way to bet on the performance of developed market stocks; HDEF should outperform an unhedged competitor when the U.S. currency strengthens. Those expecting the dollar to lose value relative to other currencies will probably prefer to leave currency exposure unhedged. Those investors without a strong view in either direction might use a mix of both hedged and unhedged equity ETFs (e.g., 50% HDEF and 50% in an unhedged developed markets dividend fund).
HDEF is competitively priced, especially when the currency hedging is factored in. It has raised significant assets, though it’s still quite a ways behind the older iShares International Select Dividend ETF (IDV), an unhedged ETF that invests in similar markets but charges a significantly higher management fee. Other developed-markets dividend contenders include Global X MSCI SuperDividend EAFE ETF (EFAS), the Fidelity International High Dividend ETF (FIDI) and the WisdomTree International High Dividend Fund (DTH).
Cost-conscious investors who aren’t worried about currency hedging or dividend yields might consider the iShares Core MSCI Total International Stock ETF (IEFA) or the Vanguard FTSE Developed Markets ETF (VEA).