FTSE Russell launches 50% hedged international indices

Jul 27th, 2015 | By | Category: ETF and Index News

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FTSE Russell, a global index provider, has announced the launch of the FTSE 50% Hedged Index Series. The series is designed for use as underlyings for index-tracking funds, such as ETFs, and as a performance benchmark to help US dollar-based investors evaluate their currency exposures and hedging strategies when investing internationally.

FTSE Russell launch 50% hedged international indices

Ron Bundy, CEO Benchmarks North America, FTSE Russell.

The initial three indices in the series are the FTSE Developed ex North America 50% Hedged to USD Index, the FTSE Developed Europe 50% Hedged to USD Index and the FTSE Japan 50% Hedged to USD Index.

These are based on the FTSE Developed ex-North America, FTSE Europe and FTSE Japan indices, respectively, and will hedge against 50% of the fluctuations between the US dollar and the home currency of the parent index.

The indices are composed of large- and mid-cap equities and use one month forward rates in the currency hedging calculation.

IndexIQ, a leading provider of alternatives ETFs, has listed three new ETFs based on the index suite on the NYSE Arca exchange.

There has been growing demand for US dollar-hedged international equity products through 2014 and 2015 as investors have looked to benefit from the quantitative easing policies in Japan and Europe, which, while pushing up equity prices, have devalued their currencies. Up until this point, however, most indices and ETFs have only provided fully hedged exposure.

Commenting on the launch, Ron Bundy, CEO Benchmarks North America, FTSE Russell, said: “In recent years currency exposure has become an increasingly important factor in global equity portfolios and our clients are asking for currency hedged benchmarks that go beyond the 100% hedge ratio available today. The FTSE 50% Hedged Index Series is designed to assist our clients in gaining a more complete understanding of the impact of currency in their international equity portfolios and we are excited that IndexIQ has chosen FTSE Russell as they offer 50% currency hedged ETFs to their clients.”

The returns of an unhedged international equity strategy can be positively or negatively affected by fluctuations in the currencies in which the underlying holdings trade. On the other hand, fully US dollar-hedged strategies provide no currency diversification and are tied to the strength of the dollar. This index suite attempts to strike the balance between the two, smoothing the impact of currency fluctuations without taking a definitive position on the direction of the dollar in relation to international currencies.

Adam Patti, Chief Executive Officer of IndexIQ, said: “Our research has indicated that 50% hedged portfolios can potentially capture much of the risk reduction benefits of a fully hedged approach, while securing steadier performance, regardless of exchange rate fluctuations. By aligning with FTSE Russell, we can now offer ETFs that allow our clients to position their international equity portfolios in a way that is neither actively bullish nor bearish on the direction of the US dollar or foreign currencies.”

 

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