When to use a currency-hedged ETF

Last week, iShares launched Europe's first currency-hedged exchange-traded funds. They are a valuable addition to investors' armoury - but when should you use them? Paul Amery explains.

Last week, iShares launched Europe's first currency-hedged exchange-traded funds (ETFs). These allow investors to remove the currency risk component from three popular global equity indices: the MSCI Japan (available in a euro-hedged version only), MSCI World, and the S&P 500 (these are offered in both sterling- and euro-hedged versions).

The advantage of currency hedging is that you can split the investment decision regarding the underlying market from your view on its currency. Want to buy US shares, but concerned about the dollar? Buy a hedged S&P 500 fund. Feel that Japan's stockmarket is bottoming, but worried that the yen is vastly overvalued? Consider the hedged MSCI Japan ETF.

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Paul Amery

Paul is a multi-award-winning journalist, currently an editor at New Money Review. He has contributed an array of money titles such as MoneyWeek, Financial Times, Financial News, The Times, Investment and Thomson Reuters. Paul is certified in investment management by CFA UK and he can speak more than five languages including English, French, Russian and Ukrainian. On MoneyWeek, Paul writes about funds such as ETFs and the stock market.