While there is certainly some additional risk associated with Exchange Traded Funds that offer currency hedging, investors looking for international exposure need to consider currency hedging ETF's as a viable option.
I am not normally in favor of ETF's that increase investors risk by using sophisticated investment strategies which increase leverage or offer hedged protection. These products are 'offering' this added feature at increased cost to the investor and usually more so than that at rather elevated risk levels.
In most cases I would argue that if you need to hedge against something, than why even invest in that sector at all? When it comes to foreign equities, it is hard to ignore the developed markets like Europe and Asia. But, the big risk of investing in those countries today is how fluctuations in the currency will affect your returns.
If your investment increases in value by say 10%, but the U.S. dollar compared to that foreign currency increases by 10%, then you have not made a single dollar. Your entire investment gain was wiped out by the currency exchange rate changing. The opposite can also happen; if your asset declines in value, but so does the dollar, than you haven’t lost anything. Continue reading "Currency Hedging ETF's; Why You Would Buy Them"