With prospects of higher interest rates and a strengthening U.S. dollar, investors are beginning to use currency-hedged equity exchange traded funds to mitigate currency fluctuations, and now BlackRock’s iShares wants in on the space.
BlackRock’s iShares ETF arm is working on three currency-hedged ETFs based on Japan, Germany and the EAFE countries, reports Brendan Conway for Barron’s. The ETFs will mitigate fluctuations between the currencies and the U.S. dollar through foreign currency forward contracts.
- According to a SEC filing, theiShares Currency Hedged MSCI Japan ETF will track large- and mid-cap Japanese equities while hedging against fluctuations between the JPY and USD.
- According to a SEC filing, the iShares Currency Hedged MSCI Germany ETF follows large-and mid-cap German equities while hedging against fluctuations between the EUR and USD.
- According to a SEC filing, the iShares Currency Hedged MSCI EAFE ETF will include large- and mid-capitalization equities in Europe, Australasia, and the Far East countries while hedging against fluctuations in component currencies and the USD.
The underlying indices are designed to generate higher returns than an similar non-currency hedged investment when the foreign currency depreciates against the U.S. dollar. Conversely, the underlying indices will generate lower returns than similar unhedged ETFs when the foreign currency appreciates against the U.S. dollar.
The iShares ETF would be going up against the db X-trackers MSCI Japan Hedged Equity Fund (DBJP) and WisdomTree Japan Hedged Equity Fund (DXJ) , two popular strategies over the past year as investors capitalized on aggressive Bank of Japan monetary policies and a quickly depreciating yen. [Breaking Down the Two Largest Japan ETFs]
The proposed iShares Germany ETF would be competing with the db X-trackers MSCI Germany Hedged Equity Fund (DBGR) .
The db X-trackers MSCI EAFE Hedged Equity Fund (DBEF) also offers investors with a currency hedged option for exposure to the MSCI EAFE US Dolalr Hedged Index.
For more information on new fund products, visit our new ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.