3 Currency Hedged ETFs Your Broker Forgot to Mention (DBEF, HEDJ, DBEM)
Not every investor or trader is a forex trader, but it's fair to say in this era of global central banks running the printing presses hot and heavy, being aware of one's forex risk is important. This is especially true for U.S. investors that are long many ex-U.S. ETFs, a trade that arguably amounts to an indirect currency trade whether the investor knows it or not.
There are ways to mitigate that currency risk with ETFs though few investors realize that judging by the assets under management numbers for these funds. Oh well, ignorance isn't always bliss.
As one example, in the past month the the db-X MSCI Brazil Currency-Hedged Equity Fund (NYSE: DBBR) is down 2.25%, but that compares to a 7.62% loss for the iShares MSCI Brazil Index Fund (NYSE: EWZ), the undeniable king of Brazil-specific ETFs. DBBR isn't the only currency-hedged ETF worth considering. There are others, including the...
WisdomTree International Hedged Equity Fund (NYSE: HEDJ) With almost $25.7 million in AUM, the WisdomTree International Hedged Equity Fund is one of the larger hedged ETFs on the market today and it has been a decent performer, gaining almost 4.4% in the past six months.
The ETF tracks the WisdomTree DEFA International Hedged Equity Index, so it's not surprising that more than 48% of HEDJ's country weight is devoted to the U.K., Japan and Australia. The aim here, as it is with the other funds on this list, is to provide some coverage for investors should the dollar falter against, in the case of HEDJ, the pound, yen, euro and Aussie dollar among other currencies. In terms of sector allocation and individual holdings, HEDJ is very similar to the WisdomTree DEFA Equity Income Fund (NYSE: DTH).
db-X MSCI EAFE Currency-Hedged Equity Fund (NYSE: DBEF) With over $33.4 million in AUM, the db-X MSCI EAFE Currency-Hedged Equity Fund is also one of the bigger funds in the hedged currency universe and that's not a bad haul for an ETF that is less than a year old.
As one can tell by the name, DBEF is a member of the recently highlighted EAFE ETF club. Along those lines it must be noted that on a year-to-date basis, DBEF has outperformed DTH, the iShares MSCI EAFE Index Fund (NYSE: EFA) and the iShares MSCI EAFE Minimum Volatility Index Fund (NYSE: EFAV).
The U.K. and Japan combine for 35% of DBEF's weight while France, Germany and Switzerland each receive allocations of 9%.
db-X MSCI Emerging Markets Currency-Hedged Equity Fund (NYSE: DBEM) As we illustrated with DBBR, it can pay to hedge currency exposure in emerging markets and that's exactly what the db-X MSCI Emerging Markets Currency-Hedged Equity Fund helps investors do.
DBEM's index features exposure to the following 21 countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, South Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey. However, South Korea, Brazil and Taiwan represent 37% of the fund's weight.
Remember, funds such as those highlighted here will lag their non-hedged counterparts when the dollar weakens and that explains why DBEM is up just 2.83% year-to-date compared to a gain of 11.88% for the Vanguard MSCI Emerging Markets ETF (NYSE: DBEM). Over the past year though, DBEM has been the better bet.
For more on EAFE ETFs, please click HERE.
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