Tag Archives: europe

The Benefits Of Currency-Hedged International ETFs

By Max Chen and Tom Lydon Currency-hedged exchange traded funds have become a popular way to access international markets while hedging currency risks. While some may be concerned about the costs of implementing these currency hedges, the benefits have outweighed the costs, reports ETF Trends . For developed international market exposure, investors have turned to broad EAFE – developed Europe, Australasia and Far East – Index ETFs, like the iShares MSCI EAFE ETF (NYSEArca: EFA ) and Vanguard FTSE Developed Markets ETF (NYSEArca: VEA ) . However, when accessing overseas markets, investors will be exposed to currency risks – a strengthening U.S. dollar or weakening foreign currency diminishes international equity returns. Alternatively, investors may look at a number of currency-hedged international ETF options to capture foreign exposure while hedging currency risks, such as the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF ) , which utilize currency forward contracts to diminish the negative effects of weaker foreign currencies. Some may be concerned about the costs to implement the hedging strategy, especially as fund managers sell a foreign currency forward at a different rate to where the spot rate is. Investors typically bear a hedging cost when the interest rate is higher on a foreign currency than it is on the U.S. dollar, Deutsche Asset Management strategists Abby Woodman, Dodd Kittsley and Robert Bush said in a research note. On the other hand the opposite is also true. When U.S. rates are higher than foreign ones, hedging becomes a net benefit for U.S. investors as there is a “positive cost of carry.” “For many currencies today, including the euro, pound, yen and Swiss franc, one-month interest rates are lower than they are for the U.S. dollar, resulting in a hedging ‘benefit’ to U.S.-based investors removing their international foreign exchange (NYSE: FX ) exposures,” Deutsche strategists said. Looking at DBEF’s underlying MSCI EAFE currencies, we see that that five of the 12 developed market currencies show negative one-month deposit rates, including a -0.17% rate for the euro, which makes up 30.4% of the EAFE index, a -0.21% rate on the Japanese yen, which is 24.2% of the index, and -0.74% rate on the Swiss franc, which is 9.3% of the benchmark. More importantly, most foreign currency rates to the USD show a positive spread – the U.S. dollar rate is higher than the foreign rates, which provides a positive cost to carry, or a benefit, for hedged investors. Specifically, among the top four currency exposures, which make up 83% of the EAFE Index’s weighting, the EUR shows a +0.70% spread to USD, JPY shows a +0.74% spread to the USD, the GBP has a +0.03% spread to the USD and the CHF has a +1.27% spread to the USD. “Anytime the U.S. dollar rate is higher than the foreign rate (the ‘Spread to USD’ row is positive) then there will be a positive cost of carry,” the Deutsche strategists added. “Or, to put it another way, the investor gets paid to hedge.” Currently, investors with currency-hedged developed EAFE market exposure are receiving a positive cost of carry from each of the four biggest currencies in the international basket. Deutsche X-trackers MSCI EAFE Hedged Equity ETF Click to enlarge Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

3 Best-Rated Dreyfus Mutual Funds To Consider

The Dreyfus Corporation – a segment of BNY Mellon – was founded in 1951 and has around $286 billion of assets under management allocated across a wide range of equity and fixed-income mutual funds. Meanwhile, established in 1784 by Alexander Hamilton, BNY Mellon currently has nearly $1.6 trillion assets under management invested throughout the globe. It provides services including investment management, investment services and wealth management across 35 countries. Below we share with you three top-rated Dreyfus mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. To view the Zacks Rank and past performance of all Dreyfus mutual funds, investors can click here to see the complete list of Dreyfus funds . Dreyfus Global Equity Income A (MUTF: DEQAX ) invests a large portion of its assets in equity securities. DEQAX invests in dividend-paying companies situated in the United States, Canada, Japan, Australia, Hong Kong and Western Europe. DEQAX may invest a maximum 30% of its assets in emerging markets. DEQAX seeks total return. The Dreyfus Global Equity Income A fund has a three-year annualized return of 7.1%. As of January 2016, DEQAX held 55 issues with 5.52% of its assets invested in Philip Morris International Inc. (NYSE: PM ). Dreyfus International Equity A (MUTF: DIEAX ) seeks capital appreciation over the long run. DIEAX invests the majority of its assets in securities of foreign companies. DIEAX focuses on companies that are located in Canada and countries included in the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index. The Dreyfus International Equity A fund has a three-year annualized return of 2.3%. DIEAX has an expense ratio of 1.12% compared to the category average of 1.22%. Dreyfus Municipal Bond (MUTF: DRTAX ) invests a major portion of its assets in municipal debt securities that are expected to provide return exempted from federal income tax. DRTAX invests the majority of its assets in securities that are rated A or higher. DRTAX is believed to maintain a dollar-weighted average maturity of more than 10 years. The Dreyfus Municipal Bond fund has a three-year annualized return of 3.5%. Daniel Marques is one of the fund managers of DRTAX since 2009. Original Post

Defensive ETFs Outperforming The Market

2016 has been a year filled with plenty of volatility and large scale moves. Markets have recovered well off their lows and investors are now reviewing stocks and ETFs that have outperformed the overall market. This examination better prepares investors for any storm that may hit the markets in the future. If the market pulls back, the ETFs that did well earlier in the year will more than likely continue to outperform the S&P 500. Investors will look to hide in these ETFs until they feel like the weather is clear and economic certainty is better known. I wanted to examine a couple ETFs that have outperformed the S&P and will continue to do so if the market has another setback. These ETFs won’t be fully immune to a market pullback, but they will do better than most if the lows of the year are tested once again. In addition to the sector ETFs, I wanted to examine some top ranked stocks that might move with the ETF. The individual stock provides an opportunity for an investor who would want a bit more risk/reward. The Utilities Select Sector SPDR ETF (NYSEARCA: XLU ) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Utilities Select Sector Index. Utilities are considered a safe place in times of uncertainty. The water, lights and the heat will be the last cuts a consumer makes if a recession hits. This certainty of cash flow makes utilities an attractive play. The dividend also makes utility stocks attractive because of the current atmosphere of low interest rates. The ETF has an expense ratio of .14% and is up almost 7% on the year. It sports a 3.4% dividend and has a P/E of 16. The biggest holding in XLU, with an 8.90% weighting, is NextEra Energy (NYSE: NEE ), a Zacks Ranked #3(Hold). Those looking for individual names might hold off on NextEra and instead look to RWE AG ( OTCPK:RWEOY ), a Zacks Ranked #1(Strong Buy). RWE is active in the generation and transmission of electricity and gas. The company is also active in the water business and is one of Europe’s five largest utilities. The company sports Zacks Style Scores of “A” in Value and Momentum and pays a dividend of 6.71%. The company has a $7 billion market cap and is seeing estimates being taken higher for fiscal year 2016. Over the last 90 days, estimates have been revised 8% higher, from $.091 to $0.99. The Consumer Staples Select Sector SPDR ETF (NYSEARCA: XLP ) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Consumer Staples Select Sector Index. Consumer staples are companies that make products that people will buy no matter what. Think toothpaste, food, drugs, beverages and other household items. Stocks in this sector will typically outperform in weak markets due to the constant strength of demand of their products. The biggest holding in XLP is Proctor and Gamble (NYSE: PG ) with a 12% weighting. The stock has a Zacks Rank #4(Sell) so if looking for an individual name, it might be best to look at Clorox (NYSE: CLX ), which has a Zacks Rank #2 (Buy). Clorox has a $16 billion market cap with a forward P/E of 25. The company pays a 2.45% dividend and expects EPS growth of 7.34%. Over the last two months, estimates for the current year are rising up 1.1% from $4.85 to $4.91. The SPDR Gold Trust ETF (NYSEARCA: GLD ) seeks to reflect the performance of the price of gold bullion. The Trust holds gold bars and from time to time, issues baskets in exchange for deposits of gold and distributes gold in connection with redemptions of baskets. Gold has had a nice run over the last three months and has held up as the market has rallied. GLD reflected that with an 18% move higher. Gold and gold ETFs are looked at as safe havens for uncertainty, and the fact that they have held up tells investors that 2016 might see some rough waters ahead. There are no individual holdings of stocks in GLD. If investors are interested in gold stocks, they should look to the miners as a way to benefit from rising gold prices. Looking at the chart below, we see how gold has performed against the S&P 500 over the past three months. The iPath S&P 500 VIX ST Futures ETN (NYSEARCA: VXX ) is an ETN that is designed to provide investors with exposure to the VIX. The VIX is commonly referred to as the fear gauge and will shoot higher when the market sells off. Just like GLD there are no individual stocks held within the ETN, but rather it offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects the implied volatility of the S&P 500. In Summary Investors should be positioning themselves for another pullback at some point this year. The defensive sector ETFs offer a way to stay invested and outperform the market. The fear ETF plays of gold and the VIX offer investors a way to play offense in a defensive market. Original Post Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.