First Bridge ETF landscape and risk report: January 2014 (Part 5 of 7)
The benefits from currency hedging vary by region and time period
The chart below compares the returns of currency-hedged versus currency-unhedged ETFs for the international developed equity and emerging market equity regions, in the calendar year 2013. In both cases, the currency-hedged versions came out marginally ahead. In 2014, emerging markets may present an opportunity to use currency-hedged products.
Focus on currency hedging in emerging markets in 2014?
A significant decision for ETF strategists in 1Q14 will be how much to allocate to emerging market equities, given the possible impact of the Fed taper program on these markets. For those who decide to stay invested, it is worth noting that the INR, BRL, and RUB have all declined relative to the USD in the trailing 12 months. If that trend persists in 2014, it may be worth evaluating currency-hedged ETPs for emerging markets exposure.
Browse this series on Market Realist:
- Part 1 - Must-know: ETF assets fell to $1.64 trillion in January
- Part 2 - Investors are anticipating increased volatility in equity markets
- Part 3 - An overview of some of the ETFs designed to manage volatility