Hedged Currency ETFs

As I’ve been telling you for the past couple of weeks, I recently attended the largest meeting of the ETF minds in the country, the Inside ETFs Conference. This huge event had nearly 2,000 attendees, all focused on how to make the most of ETF investing. There was a tremendous lineup of speakers, a wide array of topics were discussed and just about every ETF issuer was in attendance.

Recall that in our last issue of the Weekly ETF Report, I told you about the extreme innovations in smart-beta ETFs. This week, I want to tell you about another innovative segment of the ETF industry that’s seen big growth, and that’s hedged currency ETFs.

These funds are designed to take advantage of the upside in their respective countries. But what’s interesting about these ETFs is that they also hedge out the currency risk associated with a specific currency (e.g. the euro, yen, etc.).

The chart here of EFA vs. the Deutsche X-trackers MSCI EAFE Hedged Equity (DBEF) shows the relative outperformance of the same stocks when you factor in the currency hedge.

Here we see that during the past three years, the currency hedge ETF, DBEF, has significantly outperformed the non-currency hedged ETF, EFA. Because the euro has been under significant pressure since mid-2014, stocks in the EFA have been kept under wraps. Yet with the benefit of a currency hedge, those same stocks have continued to shine.

If you are going to invest internationally, and you definitely should, consider looking into hedged currency ETFs.