Tag Archives: currency hedging

Currency Hedging On the Loose in ETF World

July 8, 2015 MarketsMuse Staff Reporter Leave a comment

Do you hear that? That stampeding sound you hear is coming from fund managers scurrying to get into the currency-hedging trade.

Currency hedging ETFs have been in vogue this year given the ultra-lose monetary policy across the globe and a strong U.S. dollar against a basket of other currencies. The bullish trend in the dollar is likely to continue as the Fed is primed to increase interest rates for the first time since 2006 later this year, as the U.S. economy roars back to life.

While cheap money flows are making international investment a compelling opportunity for U.S. investors this year, a strong dollar could wipe out the gains when repatriated in U.S. dollar terms, pushing international investment into the red in spite of well performing stocks. As a result, investors are flocking to currency hedged ETFs. This has a double benefit. While these ETFs tap bullish international fundamentals, they dodge the effect of a strong greenback.

As is often the case on Wall Street, the natural worry is whether the rush might come too late. Foreign exchange dynamics present earlier this year have abated somewhat, making the need to protect against currency movements less urgent for the moment.

With the race to the bottom heating up among global central banks, it’s no wonder fund managers are looking to capitalize.

ETF News

Hedged Vs. Unhedged International Currency ETFs

March 18, 2015 MarketsMuse Staff Reporter Leave a comment

MarketMuse blog update courtesy of CNBC. With investing overseas being so dangerous right now, because of enormous moves in currency, buying stocks overseas—including ETFs, why are people so keen on doing it. CNBC reporter, Bob Pisani’s ask the question:

Why doesn’t everyone buy hedged international ETFs when they want international exposure, rather than unhedged ETFs?

There are several reasons:

1) Until recently, it was almost impossible for the average investor to do so. There simply were no ETFs that enabled an investor to hedge out currency. A professional could hedge, of course, but at considerable cost.

Now that more hedged ETF products are becoming available, investors are taking note. In fact, the biggest European ETF is now a hedged product, the WisdomTree International Hedged, which recently surpassed its biggest unhedged rival, the Vanguard European ETF.

2) There was not a huge demand for such a product because currency moves like we have seen in euro this year (down 5 percent against the dollar) are very rare. Oh sure, maybe if you were investing in Argentina, but not the euro, not the yen. Most years did not involve anywhere near such dramatic moves.

This year, for example, the yen has barely moved against the dollar, so the difference between a hedged Japan ETF and an unhedged Japan ETF is very small:

That was not the case last year, when there was an enormous move in the yen versus the dollar, and investors made the DXJ the hottest ETF in years.

For the entire article from CNBC’s Bob Pisani’s story “Why currency-hedged ETFs are hot”, click here.

ETF News, Global Macro Strategy

Guggenheim Investments Eyes Currency Hedged ETFs

February 2, 2015 MarketsMuse Staff Reporter Leave a comment

MarketMuse update is courtesy of Reuters.

Guggenheim Investments, the seventh-largest ETF issuer in the United States, is considering trying on currency hedged ETFs for size.

Guggenheim Investments is considering launching one or more currency hedged exchange-traded funds, one of the hottest and most sought-after financial products the last few months.

“I will confirm that we’re interested in this space,” Bill Belden, Guggenheim’s managing director of product development in Chicago told Reuters on Friday. “We’re very familiar with the currency space and we’re always interested in providing new products whether they’re hedged or not.”

A currency-hedged ETF removes the foreign currency return of a given fund by buying a forward contract in the currency, and rolling it typically on a monthly basis.

Currency-hedged ETF assets grew 48 percent in 2014 to roughly $20.8 billion, and have grown 1,519 percent over the past two years, according to Deutsche Bank AG, a major player in the space.

In contrast, unhedged European equity ETFs have seen six straight months of outflows since June 2014, with an aggregate $8.9 billion in outflows, Deutsche Bank data shows. On the other hand, hedged European equity ETFs have seen consistent inflows over the same period, taking in $4.5 billion.

A strong dollar is prompting U.S. investors to buy hedged ETFs. Typically, currency-hedged ETFs protects the underlying international equity exposure against a falling foreign currency such as the euro or yen.

BlackRock Inc, WisdomTree Investments Inc and Deutsche Bank are the three major players in the currency-hedged ETF space. WisdomTree, which was the first to this ETF sector, is the largest of the three, with about 80 percent of the roughly $20 billion allocated to currency-hedged ETFs.

WisdomTree in January alone attracted $1.6 billion in inflows, according to Luciano Siracusano, WisdomTree’s chief investment strategist.

But Guggenheim’s Belden said there’s room for more players in the industry. Guggenheim has about $28.8 billion in ETF assets and roughly $220 billion overall.

“The hedged ETF you have seen basically captures an exposure to an international market that hedges against a local currency’s falling value,” said Belden.

“But we know that local currencies don’t fall perpetually. It has been a pretty consistent trend in the past but we don’t know what’s going to happen to those strategies, if any particular currency goes the other way.”

Guggenheim has a suite of nine currency ETFs, totaling about $1.1 billion. Of the nine ETFs, two have shown positive returns. CurrencyShares Japanese Yen Trust is up 1.5 percent so far this month, and the CurrencyShares Swiss Franc Trust is up 8 percent.

ETF News

International ETF Launches Lead Growth of Exchange-Traded Funds; A Chinese Menu

August 6, 2014 MarketsMuse Staff Reporter Leave a comment

Below courtesy of extract from today’s ETF.com and their reporter Heather Bell.

Year-to-date through the end of July saw 118 fund launches versus 86 during the same time period last year. However, what’s notable about the increase in launches is the fact that it is driven almost entirely by international equity ETF. In the first seven months of 2014, 55 ETFs targeting that space made their debut versus a mere 25 international equity funds in the first seven months of last year. Among this year’s launches, there are some very clear themes in international equities.

At least 18 of those international equity ETFs could be considered smart-beta or factor-based funds, ranging from the Market Vectors International Quality ETF (QXUS) to the iShares MSCI Europe Minimum Volatility ETF (EUMV) to the JPMorgan Diversified Return Global Equity ETF (JPGE).

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