BetaShares launches currency-hedged version of global quality ETF

Jun 12th, 2020 | By | Category: Equities

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BetaShares has introduced a currency-hedged version of its global quality ETF.

BetaShares launches currency-hedged version of global quality ETF

The new version of the fund hedges currency exposure relative to the Australian dollar on a monthly basis.

The BetaShares Global Quality Leaders ETF – Currency Hedged (HQLT AU) has listed on the Australian Securities Exchange and comes with an expense ratio of 0.38%.

The fund is linked to the iSTOXX MUTB Global ex-Australia Quality Leaders Index AUD Hedged which screens a universe of developed markets globally, excluding Australia, for companies with robust quality characteristics.

The methodology initially separates firms from the parent STOXX Global 1800 ex Australia Index into three segments depending on their listing region: North America, Europe, or Asia Pacific.

Stocks are then ranked, relative to their region, on four metrics of quality: return on equity, financial health (total debt divided by the sum of shareholder’s equity and total debt), cash flow generation, and business stability (standard deviation of net income over the last five years divided by shareholder’s equity).

Stocks in the bottom half of their regional ranking by return on equity as well as stocks in the bottom 5% of the other metrics are excluded.

The remaining stocks are then assigned a composite score based on a 40% allocation to their return on equity rank and a 20% allocation to each of their other three ranks.

Finally, the 150 stocks from across all three regions that have the highest composite scores are selected for inclusion and weighted by free float-adjusted market capitalization, subject to a constituent cap of 2%.

Currency exposure relative to the Australian dollar is hedged on a monthly basis using one-month foreign exchange forward contracts.

As of 31 May 2020, stocks from the US account for the majority of the index’s exposure with a weight of 69.2%. The next largest country exposures are Japan (11.4%) and Switzerland (4.1%). Over one-third (34.0%) of the total weight is allocated to information technology companies followed by stocks from healthcare (23.6%), consumer discretionary (11.3%), and industrial (11.0%) sectors.

The index currently has a dividend yield of 1.40%. Distributions are made to investors on a semi-annual basis.

BetaShares originally launched the unhedged BetaShares Global Quality Leaders ETF (QLTY AU) in November 2018. The fund comes with an expense ratio of 0.35% and has assets under management of AUD 50 million.

The global quality strategy may appeal to investors seeking a core equity exposure but are concerned about future market stress. Research indicates that quality companies with strong balance sheets and low financial leverage are typically able to hold their value better than the broader stock market during periods of increased volatility.

Investors may also access global quality strategies through ETFs provided by State Street Global Advisors and VanEck. The AUD 20m SPDR MSCI World Quality Mix Fund (QMIX AU) tracks the MSCI World Quality Mix Index, while the AUD 1.05bn VanEck Vectors MSCI World ex-Australia Quality ETF (QUAL AU) tracks the MSCI World ex Australia Quality Index. Both ETFs come with expense ratios of 0.40%. VanEck also offers a currency-hedged version of its quality ETF (Ticker: QHAL AU) which costs 0.43%.

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