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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

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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.

IG Analyst

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:

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

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA, a SIPP or an IG Smart Portfolio can fall as well as rise, which could mean getting back less than you originally put in. Spread bets and CFDs are leveraged products and can result in losses that exceed deposits. Spread betting and CFD trading are not permitted within the IG SIPP. Please ensure you fully understand the risks and take care to manage your exposure.

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