IndexIQ rolls out 50% currency-hedged ETF suite

Jul 27th, 2015 | By | Category: Equities

IndexIQ, a leading developer of alternative ETFs, in partnership with MainStay Investments, has announced the launch of three 50% currency-hedged international equity ETFs.

IndexIQ rolls out first-of-its-kind 50% hedged ETF suite

Adam Patti, founder and chief executive officer of IndexIQ.

Based on indices developed by FTSE Russell, the suite offers US dollar-based international equity exposure which is 50% hedged to the currency fluctuations of the underlying indices.

Interest in currency-hedged strategies has grown dramatically over the past year as divergent global monetary policies have driven US dollar strength and eroded dollar-based returns.

Until now, ETF investors have only had the choice between unhedged or 100% hedged strategies. There are benefits and drawbacks to both, while unhedged strategies provide diversified currency exposure they also generate lower returns when international currencies weaken, fully hedged strategies mitigate this risk but also constitute an implicit call on the continued strength of the US dollar.

IndexIQ’s offering presents investors with the option of following a neutral strategy, which smooths the effects of international currency movements without taking a definitive stance on the direction of the US dollar.

“Our research has shown that 50% hedged portfolios have the potential to capture up to 80% of the risk reduction benefits of a fully hedged approach, while potentially securing steadier performance, regardless of exchange rate fluctuations,” said Chief Executive Officer and Co-Founder of IndexIQ, Adam Patti.

He added: “With the launch of these new funds, investors can now easily add tax-efficient, neutral positioning at the core of their international equity portfolios that is neither actively bullish nor bearish on the direction of the U.S. dollar or foreign currencies.”

The index suite removes the need to buy a combination of unhedged and 100% hedged ETFs to create a neutral strategy.

According to Patti: “This neutral position would historically have required an investor to spend time regularly rebalancing between two separate investments, which also introduces unnecessary trading costs and tax implications. Our new ETFs help solve this problem and we see them as important options for investors and look to build upon this theme in the future.”

The IQ 50 Percent Hedged FTSE International ETF (HXFI), the IQ 50 Percent Hedged FTSE Europe ETF (HFXE) and the IQ 50 Percent Hedged FTSE Japan ETF (HXFJ) have been listed on the NYSE Arca exchange and carry a 0.35%, 0.45%, and 0.45% expense ratio respectively. For each fund, approximately half of the respective index exposure is hedged against the US dollar on a monthly basis.

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