UBS to launch currency hedged ETF series based on MSCI indices

Jan 8th, 2014 | By | Category: Equities

UBS Global Asset Management has licensed 27 currency hedged equity indices from MSCI for the launch of a new series of exchange-traded funds (ETFs) to be rolled out in Europe, incorporating listings on the SIX Swiss Exchange, London Stock Exchange, Deutsche Börse and Borsa Italiana.

UBS to launch currency hedged ETF series based on MSCI indices

UBS Global Asset Management is set to launch a new series of currency hedged ETFs based on a family of MSCI indices.

The indices, part of the MSCI Hedged Indices family, include both equities and currency components and measure the effects of hedging foreign currencies back to the “home currency”.

The equities included in each hedged index are based on an unhedged MSCI parent equity index. The indices licensed to UBS include various GBP, CHF, EUR and USD-hedged versions of the MSCI EMU, MSCI Switzerland, MSCI United Kingdom, MSCI USA, MSCI Canada, MSCI Japan and MSCI Australia indices.

Each index is designed to represent a close estimation of the local currency return of the parent index that can be achieved by hedging the currency exposures of the parent index by notionally “selling” currency forwards.

Currency movements can have a significant impact on the performance of portfolio returns, as Andrew Walsh, Head of UBS ETF UK & Ireland, explained: “Portfolios which include global equities are exposed to several currency risks. Exchange rate fluctuations can have a major impact on investment returns. Canada provides a good example of how important currency hedging can be. The MSCI Canada has posted an annualized return of 8.34% in local currency terms. Without hedging, British Pound investors would have earned only 1.01%, while with currency hedging in place, the gain could have been 8.12%.”

Thomas Merz, Head of UBS ETFs Europe, added: “By basing our physically replicated ETFs on a range of MSCI Hedged Indices, we are able to offer our clients a way to reduce currency risk and optimize portfolio returns in a transparent and cost-efficient way.”

Deborah Yang, Managing Director and Head of the MSCI Index Business in EMEA and India, commented: “We are very pleased to license our indices to UBS for the launch of this new series of currency hedged ETFs. UBS’s decision to use nearly 30 MSCI indices as the basis for these new ETFs reflects not only the wide range of indices we offer, but also MSCI’s position as the index of choice for the ETF market.”

The rollout expands UBS’s existing currency-hedged lineup, which includes eight sterling-hedged equity ETFs unveiled by UBS in November last year. Aimed primarily at UK investors and based on the MSCI Japan, MSCI Canada, MSCI EMU and MSCI Switzerland indices, these ETFs contain in-built currency hedges which allows investors to earn the performance of the underlying MSCI parent index whilst mitigating the risk of exchange rate fluctuations in pound sterling versus the yen, Canadian dollar and Swiss franc.

The new funds come with total expense ratios ranging from 0.30% to 0.50%.

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