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Currency Hedged ETFs Gaining Love on Rising Dollar

Sweta Killa
Mutual Fund Report for TRMCX

A surging U.S. dollar is knocking down returns of international investments. This is because a strong greenback has eaten away foreign investment gains when repatriated in U.S. dollar terms, pushing them into the red even when international stocks are performing well.

Inside The Dollar Surge

Thanks to a rise in bond yields, the dollar, as measured by the ICE U.S. Dollar Index, has surged over 3% since mid-April, after languishing for most of the year and registering a 2.1% decline in the first three months of 2018, according to FactSet data. Notably, the yield curve is steepening after a long period of flattening, easing fears of a future downturn for the U.S. economy and sparking a rally in the greenback. This is because a flattening curve is commonly seen as a warning of an economic downturn.

Additionally, strong economic growth and inflationary pressures are bolstering the case for aggressive rates hikes, pushing the dollar up. The trend is likely to continue in the months ahead given that tax cut policies and strong earnings will continue to prop up the economy. A healthy economy is expected to pull in more capital into the country and lead to appreciation of the U.S. dollar (read: 5 ETFs to Profit From a Dollar Rebound).

Solid International Fundamentals

International stock market fundamentals have been strong buoyed by booming trade, strong corporate earnings, and a rise in commodity prices. Though the growth has slowed down in many economies due to Trump’s anti-trade policies, political instability in the United States, mid-term elections, and cheap monetary policies bode well for international investing.

As such, investors looking to tap the bullish international fundamentals dodging the effects of a strong greenback should look to currency hedged ETFs.

Why Currency Hedged ETFs?

These funds look to strip out currency exposure to a foreign economy via the use of currency forwards or other instruments that bet against the non-dollar currency while at the same time offer exposure to foreign stocks.

Given this, we have highlighted five most-popular currency hedged ETFs for investors that could make for excellent plays in a rising dollar environment:

WisdomTree Japan Hedged Equity Fund DXJ

With AUM of $6.7 billion, this ETF targets the Japanese equity stock market without the currency risk by tracking the WisdomTree Japan Hedged Equity Index. The fund trades in solid volume of more than 3.3 million shares per day and charges 48 bps in annual fees. It has risen nearly 2% in a month and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Japan ETFs to Buy as GDP Growth Revised Upward).

WisdomTree Europe Hedged Equity Index Fund HEDJ

The ETF tracks the WisdomTree Europe Hedged Equity Index and offers exposure to the European market without any currency risk. The fund has AUM of $6.4 billion and sees an average daily volume of about 1.4 million shares. It charges 58 bps in annual fees and has gained 5% in a month. The product has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares Currency Hedged MSCI EAFE ETF HEFA

The fund targets the developed international stock market with no currency risk and tracks the MSCI EAFE 100% Hedged to USD Index. It has AUM of $3.6 billion and trades in solid volume of 1.1 million shares. The fund charges 35 bps in fees per year from investors and is up 4.8% over the past month. It has a Zacks ETF Rank #3 with a Medium risk outlook.


For investors looking to remain invested in the Euro zone stocks, HEZU might be a good option. The fund follows the MSCI EMU 100% USD Hedged Index and is a play on the popular unhedged fund EZU with a hedge to strip out the euro currency exposure. It has amassed $1.9 billion in its asset base and trades in solid volumes of 1 million shares a day. The fund charges 52 bps in annual fees from investors and has gained about 5.2% over the past one month (read: 5 Europe ETFs With Great ESG Scores).

X-trackers MSCI Europe Hedged Equity ETF DBEU

This product also offers exposure to the European market without a currency risk and follows the MSCI Europe US Dollar Hedged Index. The fund has amassed $1.6 billion in its asset base and trades in solid volume of 735,000 shares a day. It charges 45 bps in fees per year and has returned about 5.7% in a month. The fund has a Zacks ETF Rank #3 with a Medium risk outlook.

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