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5 Currency Hedged ETFs Made Great Again by Trump

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Trump's plans for a massive fiscal stimulus, deregulation and tax cuts are expected to boost growth and stoke inflation in the US. Rising oil prices have led to further increase in inflationary expectations. As a result, investors now expect a more aggressive pace of rate increases by the Fed.

A major beneficiary of this trend is the US dollar, which has been rising since the election. The currency should see further gains ahead as the Fed has signaled three more rate hikes next year after raising rates by 25 bps today. A strong dollar hurts international investments by US investors. So, should investors avoid investing in international stocks?

Actually, a stronger dollar benefits overseas exporters-particularly in Japan and the Eurozone--as the Bank of Japan and the ECB continue to pursue ultra-loose monetary policies. Exports play a major role in these economies, unlike in the US. Further, a major portion of their export earnings come from the US. Thus, improving growth in the US coupled with declining domestic currencies, bodes well for stocks in these countries. That's why these stocks have been rising since the US election.

Further, Japanese and European stocks look significantly underpriced compared to the US stocks. Many analysts have been quite bullish on Japanese and European stocks as US stocks are at their historical valuations, pricing in the best-case scenario for growth next year.

Having some foreign stocks in the portfolio adds diversification and lowers volatility, leading to better risk adjusted performance over the longer-term. (Read: The Trump Effect-8 Must See ETF Charts )

Investors seeking to benefit from the likely outperformance in Japanese and European stocks while elimination the currency risk, should take a look at currency hedged ETFs.

Investors had pulled money out of currency hedged funds earlier this year as the dollar weakened and unhedged products delivered better returns but once the dollar started rising, these products are back in investor favor.

Should You Hedge Currency Risk in International Investing

Currency movements play an important role in international investing but predicting them is almost impossible, particularly for individual investors.

Currency hedged ETFs are a low-cost way of hedging out the currency risk from international exposure. WisdomTree, a pioneer in currency hedged ETFs, has seen its share price move with the dollar as a stronger dollar results in rising inflows into its ultra-popular currency hedged Japan and Europe ETFs.

Per FT , the ETF provider has seen continued inflows into its flagship currency hedged ETFs almost daily since election. Its share price has surged more than 32% over the past one month. (Read: 4 Under-the-Radar ETFs Soaring High After Trump Win )

Investors also have the option of investing in products that use dynamic currency hedging, rather than hedging out the currency exposure entirely. WisdomTree and iShares rolled out some products earlier this year that use rules based approach to manage currency exposure. Dynamic currency hedging makes some sense considering these products use well-known indicators to determine the hedge ratio.

However, since dynamically hedged products are relatively new, it's too early to judge their performance. (Read: Bet on the Rising Dollar with These ETFs )

5 Currency Hedged ETFs Investors Should Look At

WisdomTree Japan Hedged Equity Fund (DXJ)

DXJ is the most popular Japanese hedged ETF with more than $8 billion in AUM. It focuses on Japanese dividend paying exporters.

Top holdings include well known Japanese companies Toyota, Mitsubishi and Sumitomo Mitsui. It charges an expense ratio of 0.48%. The product is up about 10% over the past month. It is currently a Zacks Rank #1 (Strong Buy) ETF.

Deutsche X-Trackers MSCI Japan Hedged ETF (DBJP)

DBJP follows a similar strategy as DXJ and is also slightly cheaper, with an expense ratio of 0.45%. It has about $2 billion in AUM.

Toyota, Mitsubishi and Softbank are among the top holdings. It is up about 10% over the past month. DBJP is also a Zacks Rank #1 (Strong Buy) ETF.

iShares Currency Hedged Japan ETF (HEWJ)

HEWJ provides exposure to large- and mid-capitalization Japanese equities, both exporters and local companies. The expense ratio is 0.48%. The product is basically a currency hedged version of the ultra-popular Japan ETF EWJ.

It is currently a Zacks Rank #1 (Strong Buy) ETF. It is up about 10% over the past month.

WisdomTree Europe Hedged Equity Fund ( HEDJ )

HEDJ is the most popular currency hedged ETF with $8.7 billion in AUM. It provides exposure to European dividend paying companies with an exporter tilt.

Banco Bilbao, Telefonica and Daimler are among the top holdings. The product is currently a Zacks Rank #3 (Hold) ETF. It is up about 6% over the past month.

iShares Currency Hedged MSCI Eurozone ETF ( HEZU )

HEZU is the hedged version of the popular Euro-zone ETF EZU. It holds large- and mid-cap companies from the Euro-zone.

The product is currently a Zacks Rank #3 (Hold) ETF. It is up about 6% over the past month.

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SPDR-SP 500 TR (SPY): ETF Research Reports

WISDMTR-J HEF (DXJ): ETF Research Reports

WISDMTR-I HE FD (HEDJ): ETF Research Reports

ISHA-CH MS JAP (HEWJ): ETF Research Reports

DEUTS-XT MS JPN (DBJP): ETF Research Reports

ISHARS-CH MS EM (HEZU): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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