Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

2 ETFs To Invest Internationally And Hedge Against Strong USD

By Investing.com (Tezcan Gecgil/Investing.com )ETFsDec 01, 2020 09:44AM ET
www.investing.com/analysis/2-etfs-to-invest-internationally-and-hedge-against-strong-usd-200546384
2 ETFs To Invest Internationally And Hedge Against Strong USD
By Investing.com (Tezcan Gecgil/Investing.com )   |  Dec 01, 2020 09:44AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Investing in international equities offers exposure to the growth of global industry titans and boosts portfolio diversification. One key concern: how moves in foreign exchange rates could impact investment returns.

High volatility in forex markets can be costly for those who want to invest in equities in other countries. For instance, for US-based investors, a strong dollar would impose risk on foreign-based equity returns if the foreign currency's value was low against the USD.

Today we'll introduce two exchange-traded funds (ETFs) that are non-US equity currency-hedged funds. These funds typically use non-standardized, over-the-counter (OTC) derivatives such as forwards to hedge against depreciating foreign currencies.

1. WisdomTree Japan Hedged Equity Fund

  • Current Price: $52.39
  • 52-Week Range: $34.50 - $56.19
  • Year-to-date (YTD) change: Up 0.04%
  • Dividend Yield: 2.44%
  • Expense Ratio: 0.48%

WisdomTree Japan Hedged Equity Fund (NYSE:DXJ) provides exposure to a range of dividend-paying Japanese equities while hedging exposure to fluctuations between the US dollar and the Japanese yen, one of the most widely traded currencies globally.

Investors in the fund would expect higher returns than an equivalent non-currency hedged investment when the yen is weakening relative to the US dollar. Put another way, the fund hedges against depreciation in the yen.

DXJ Weekly Chart
DXJ Weekly Chart

DXJ, which has 442 holdings, tracks the WisdomTree Japan Hedged Equity Index. The fund started trading in June 2006 and has over $1.6 billion under management.

As far as sectors are concerned, funds are distributed among industrials (18.73%), followed by consumer discretionary (17.17%) and information technology (15.17%) among others.

Over 30% of the funds are in the top ten stocks. Toyota (T:7203), (NYSE:TM), Mitsubishi (T:8306), (NYSE:MUFG), Japan Tobacco (T:2914), (OTC:JAPAF) and Takeda (T:4502), (NYSE:TAK) lead the names in the fund.

Since the start of the year, the ETF is up less than 1%. Long-term shareholders are also entitled to dividends. Earlier in November, risk appetite propelled the Nikkei 225 index to its highest level since 1991. YTD, the index is up over 10%. Investors who believe the bullish move in Japanese equities will continue could consider buying the dips in DXJ.

Nikkei Weekly Chart
Nikkei Weekly Chart

Japan is scheduled to host the Olympics in the summer of 2021. We expect the event to provide a potential boost to Japanese equities.

On a side note, we previously discussed how those market participants who are bullish on the Japanese yen could also consider buying the Invesco CurrencyShares® Japanese Yen Trust (NYSE:FXY). Investors who do not want exposure to Japanese equities but are interested in taking a directional bet on the yen may also consider researching this currency ETF further.

2. Xtrackers MSCI All World ex U.S. Hedged Equity ETF

  • Current Price: $29.70
  • 52-Week Range: $20.16-30.25
  • YTD change: 4.55%
  • Dividend Yield: 2.1%
  • Expense Ratio: 0.41%

Xtrackers MSCI All World ex U.S. Hedged Equity ETF (NYSE:DBAW) gives access to companies in several countries, excluding the US, while hedging against movements in the underlying currencies. In other words, the fund shorts non-US dollar currencies and hedges against falls in these foreign currencies.

DBAW Weekly Chart
DBAW Weekly Chart

DBAW, which has 1926 holdings, tracks the MSCI ACWI ex USA US Dollar Hedged Index. This index hedges the currency exposures of its parent index, the MSCI ACWI ex USA Index, which is made up of large- and mid-cap stocks across 22 developed markets countries and 26 emerging markets countries.

The ETF started trading in early 2014 and currently has around $105 million under management. In terms of sectoral breakdown, financials have the highest weight (18.22), followed by consumer discretionary (13.97%), industrials (11.79%), and information technology (11.62%) among others.

The top ten businesses make up around 7% of the fund. Alibaba Group (HK:9988), (NYSE:BABA), Taiwan Semiconductor (TWO:5425), (NYSE:TSM), Tencent (HK:0700, (OTC:TCEHY) and Nestle (SIX:NESN), (OTC:NSRGY)) are the leading names in the ETF.

YTD, the fund is up over 3% and hit a record high of $30.25 on Nov. 27, 2020. Those investors who would like to have exposure to equities outside the US without taking on currency risk may find the fund attractive.

Finally, a similar fund to consider would be the iShares Currency Hedged MSCI ACWI ex US ETF (NYSE:HAWX), which hit an all-time high Nov. 30.

2 ETFs To Invest Internationally And Hedge Against Strong USD
 

Related Articles

2 ETFs To Invest Internationally And Hedge Against Strong USD

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Jan Skilbrei
Jan Skilbrei Dec 01, 2020 3:47AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
so, its lower costs, then eg buying the dollar against other currencies for a hedge (the swaps on currency trading)?
Tango Wardation
Tango Wardation Dec 01, 2020 3:04AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Awesome article!
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email