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BUSINESS Monday 28 august 2017
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Clipped: Foreign funds that ‘hedge’ against currencies lag

By STAN CHOE ger U.S. economic growth U.S. economy. Plus, econo- MSCI Eurozone ETF is up ter returns has been disap-
AP Business Writer and higher interest rates. mies in Europe and else- about 19.5 percent for the pointed.
NEW YORK (AP) — Foreign- The dollar jumped more where appear to be ac- year, more than double It may be easier to pick
stock funds have been than 10 percent against celerating, which helped the 7.6 percent gain for one way to invest in for-
some of this year’s biggest the Japanese yen within a eign stocks: either hedged,
winners, but many investors couple months of Election unhedged or even a mix
aren’t feeling the full ben- Day, and close to 6 per- of the two, and stick with
efit. cent against the euro. it. Over the very long term,
When buying a foreign- As a result, each euro returns for hedged and un-
stock fund, investors in- was worth fewer dollars hedged funds often end
creasingly have two at the end of the year. up looking similar because
options: One insulates in- So, while European stocks changes in foreign-curren-
vestors from the swings in rose strongly in euro terms, cy values tend to wash
returns that can be caused they had a more lackluster out, analysts say.
by shifts in the dollar’s value move for investors count- The majority of foreign
against the euro, yen and ing in dollars. The iShares stock funds still don’t
other currencies. These MSCI Eurozone ETF, for ex- hedge against currency
are funds that “hedge” ample, does not hedge moves. And hedging is
against currencies, while currencies, and its gain A currency trader gestures at the foreign exchange dealing something that’s more
the other group lets inves- from Election Day to the room of the KEB Hana Bank headquarters in Seoul, South Ko- common for European
tors feel their full effect. end of the year was only rea, Wednesday, Aug. 23, 2017. Foreign-stock funds have been or Japanese stock funds.
Coming into this year, with about a quarter of the Wis- some of this year’s biggest winners, but many investors aren’t Low interest rates in those
Republicans fully in charge domTree Europe Hedged feeling the full benefit. countries means it’s cheap
of Washington, expecta- Equity fund’s. (AP Photo/Ahn Young-joon) to hedge against their cur-
tions were for the dollar to The two ETFs track different their currencies. the WisdomTree Europe rencies’ movements. But
build on a postelection ral- indexes, so they’ll usually Some analysts had predict- Hedged Equity fund, for in Brazil, Turkey and other
ly, leading many investors have differing returns. But ed the euro would fall to be example. emerging markets, interest
to see hedging as the wiser currency-hedged funds worth $1 at some point this This year’s quick shift shows rates are much higher and
strategy. That turned out will generally give the bet- year. Instead, one euro is the danger in trying to time can make hedging so ex-
to be wrong. Those who ter returns when the dollar now worth $1.17. Investors any kind of market. Just like pensive that it’s not worth
tried to time the market is ascending against other in funds that don’t hedge it’s difficult to predict when the cost.“For emerging
by switching into currency- currencies. against currency swings stocks will rise or fall, it can markets, you could have
hedged funds missed out But an unexpected thing are both feeling the ben- be tough to guess where a strong opinion about
on some of the best gains happened early this year: efit of rising foreign stock the dollar is heading. Any- the currency, but be com-
so far this year. The dollar reversed course, markets, and enjoying an one who jumped into pletely wrong if it’s too
Consider the WisdomTree as some early legislative added boost provided by currency-hedged foreign costly to hedge,” said Bri-
Europe Hedged Equity stumbles dimmed ex- the rising euro and other stock funds this year, and an Jacobsen, chief portfo-
fund, an exchange-traded pectations for how much currencies. out of unhedged ones, in lio strategist at Wells Fargo
fund that owns Anheuser- Washington can do for the The unhedged iShares expectations of much bet- Funds Management.q
Busch InBev, Telefonica
and other European stocks.
It also invests in the futures
market to neutralize the ef-
fects of the euro’s move-
ment against the dollar.
The fund jumped 6.6 per-
cent between Election
Day and the end of 2016,
part of a worldwide rally for
stocks. And its returns tow-
ered over European stock
funds that didn’t hedge
against the dollar’s moves
versus the euro.
That’s because the dollar
was in the midst of a strong
rally, following the big elec-
toral win for Donald Trump
and the Republicans. The
thinking was that Washing-
ton would enact policies
that would lead to stron-