One way to mitigate currency fluctuations

Andrew Walsh, head of UBS ETF Sales in the UK & Ireland, looks at the rising interest in currency hedged ETFs & explains why he thinks they will continue to be popular. He also tells us why the biggest growth has been in the eurozone.

The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results

Why use currency-hedged ETFs?

You can use currency-hedged ETFs to help protect your investment against depreciation in a certain currency. 

For example, say you believe the eurozone equities market to be undervalued and want to take advantage by investing in an ETF. 

But weakness in the euro – due to the strength of sterling, say, or the effects of quantitative easing – makes the investment less attractive.

A currency-hedged ETF would allow you to take advantage of the upside, without letting that depreciation erode your returns.  

Why are currency-hedged ETFs becoming so popular?

Currency volatility is always on investors’ minds, and currency-hedged ETFs offer an accessible way of mitigating against the risk that it poses. 

The idea of currency hedging is nothing new. But until relatively recently only large financial institutions had the means to hedge portfolios in this way. 

Currency-hedged ETFs, however, are widely accessible to the average investor, and that protection against currency depreciation comes embedded in them. Plus, they benefit from all the usual advantages of ETFs:

  • Cost-effective investment, without high management costs
  • Transparency, with performance easy to check intraday 
  • Greater opportunity, providing access to hard-to-reach markets
  • Ease of trading, just like stocks on an exchange

Are currency-hedged ETFs right for every situation?

There are certain situations in which currency-hedged ETFs aren’t the best investment tool. For example, if a currency is appreciating rather than weakening, you’d want to remove your hedge against it to let your investment ride that rise. 

Currency-hedged ETFs with IG

We offer a range of currency-hedged ETFs. Here are some of the most popular with our clients:

  1. iShares MSCI Japan EUR Hedged UCITS ETF, iShares by BlackRock
  2. iShares S&P 500 EUR Hedged UCITS ETF, iShares by BlackRock
  3. iShares J.P. Morgan $ EM Bond EUR Hedged UCITS ETF, iShares by BlackRock
  4. iShares MSCI World EUR Hedged UCITS ETF, iShares by BlackRock
  5. db x-trackers MSCI World Index UCITS ETF. db x-trackers 

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