iShares Heats Up Competition In Currency-Hedged ETF Space

by: Tom Lydon

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, the iShares 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 a 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 (NYSEARCA:DBJP) and WisdomTree Japan Hedged Equity Fund (NYSEARCA:DXJ), two popular strategies over the past year as investors capitalized on aggressive Bank of Japan monetary policies and a quickly depreciating yen.

The proposed iShares Germany ETF would be competing with the db X-trackers MSCI Germany Hedged Equity Fund (NYSEARCA:DBGR).

The db X-trackers MSCI EAFE Hedged Equity Fund (NYSEARCA:DBEF) also offers investors a currency hedged option for exposure to the MSCI EAFE US Dollar Hedged Index.

Max Chen contributed to this article.

Disclosure: I am long DXJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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