The Pros & Cons of Currency-Hedged ETFs
October 09, 2015 at 10:34 AM EDT
One of the main attractions of exchange-traded funds (ETFs) is that in addition to offering cheap, broad, core building blocks for portfolios, they also allow retail investors to access some sophisticated tools. One of the latest such contrivances is currency hedging. Most investors are unaware that buying international stocks comes with a unique set of headaches. That’s because an international ETF is priced in dollars, but the underlying investments are priced in local currencies. Translating those two sets of currencies back and forth can actually warp the returns of the underlying stocks and ETF. And in some cases, turn gains into losses. Luckily, there are a plethora of currency-hedged ETFs that allow investors to bypass this relationship. But they aren’t without their risks either. Here’s ETFdb’s pros and cons to currency-hedged ETFs.