Flurry Of New Currency Hedged ETFs Fuels Price War
Currency hedging ETFs have been in vogue this year, given the ultra-loose 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. So far, WisdomTree Investments (NASDAQ: WETF ) has been clearly leading the space with the WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) and the WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) having AUM of $20.7 billion and $18.7 billion, respectively, thanks to the first-mover advantage, liquidity, price and brand name. However, its dominance now seems to be challenged by a flurry of new currency-hedged ETFs that have fueled a price war in the space. This is especially true as some issuers such as PowerShares, ProShares, State Street (NYSE: STT ) and iShares have come up with low-cost products in recent months that are much cheaper than those offered by WisdomTree. These could provide stiff competition to the established ETFs in the space, dulling their appeal. Here, we have highlighted some of the low-cost currency-hedged ETFs, all launched on the market in the past couple of months. ProShares Hedged FTSE Japan ETF (HGJP) This ETF provides exposure to the Japanese equity market with no currency risk by tracking the FTSE Japan 100% Hedged to USD Index. It charges just 0.23% in annual fees, which is half the expense ratio for a similar exposure provided by other products. Expense ratios for the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEARCA: DBJP ), the iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ) and DXJ are 0.45%, 0.48% and 0.48%, respectively. ProShares Hedged FTSE Europe ETF (HGEU) This fund targets the European market and provides a hedge against six major European currencies. It follows the FTSE Developed Europe 100% Hedged to USD Index, charging investors 0.27%. Here again, the expense ratio of HGEU is half compared to that of 0.45% for the Deutsche X-trackers MSCI Europe Hedged Equity ETF (NYSEARCA: DBEU ), 0.51% for the iShares Currency Hedged MSCI EMU ETF (NYSEARCA: HEZU ) and 0.58% for the WisdomTree Europe Hedged Equity ETF ( HEDJ ). PowerShares Europe Currency Hedged Low Volatility Portfolio ETF (NYSEARCA: FXEU ) This ETF offers new ways to gain exposure to European stocks, and is perhaps the first product providing two popular ETF investing strategies – low volatility and currency hedging – at the same time. Despite the fact that its unique features and combo offer what the others lack, FXEU charges a low expense ratio of 0.25%. SPDR EURO STOXX 50 Currency Hedged ETF (NYSEARCA: HFEZ ) This ETF looks to track the performance of the EURO STOXX 50 Hedged USD Index. It is basically a holding of the SPDR EURO STOXX 50 ETF (NYSEARCA: FEZ ), with currency hedge tacked onto it. The fund has an expense ratio of 0.32%, which is lower than that of many other products in the European currency-hedged space. iShares Currency Hedged MSCI ACWI ex U.S. ETF (NYSEARCA: HAWX ) This fund offers exposure to stocks in the developed (excluding the U.S.) and emerging markets by tracking the MSCI ACWI ex USA 100% Hedged to USD Index, while at the same time providing a hedge against any fall in the currencies of the specified nation. It is basically a holding of its unhedged version, the iShares MSCI ACWI ex-U.S. Index ETF (NASDAQ: ACWX ), with currency hedge tacked onto it. The product charges 0.36%, which is cheaper by 4 bps compared to the Deutsche X-trackers MSCI All World ex US Hedged Equity ETF (NYSEARCA: DBAW ) providing a similar exposure in the space. Given the lower expense ratios, these ETFs could see solid asset flows in the coming months if they succeed in outperforming or at least remain on par with the others in the space. The trends too should continue to favor international investing. Original Post