There are various options available to the investor who wants to diversify into international markets. International markets can give higher dividend yields than U.S. stocks. However, with foreign exposure comes currency risk. Foreign central banks that pursue loose monetary policies potentially weaken their currencies against the US dollar. The situation is made worse as the US Federal bank embarks on raising interest rates in 2017.
One way to protect a portfolio against currency risk is to buy a currency-hedged ETF. The IQ 50 Percent Hedged FTSE International ETF (NYSEArca: HFXI) and IQ 50 Percent Hedged FTSE Europe ETF (NYSEArca:HFXE) are two options that have outperformed the S&P 500. The HFXI gained 6.7% and HFXE gained 6.2% year to date compared to 5.3% for the S&P 500.
The 50% hedged ETF gives the investor international exposure to Europe without worrying about currency fluctuations.
HFXI is modeled after the FTSE Developed ex North America. 50% hedged to the US dollar index. Index consists of equities from Europe, Australasia and the Fast East.
HFXE modeled on the FTSE Developed Europe index. 50% hedged to the US dollar index. Index consists of equities from Europe. The fund’s performance is closely tied to the social, political and economic conditions within Europe and may be more volatile than the performance of more geographically diversified funds.
