Although foreign stocks are important for diversifying your portfolio, currency swings can affect their performance. For instance, Americans who invest in Japanese shares when the dollar is weakening relative to the yen will see a boost in returns because investments in yen get translated into more greenbacks. But when the dollar is strengthening, as it has been recently, U.S.–based investors are likely to see their returns diminish. They may think it’s time to get out of Dodge (or Toyota, as it were).
Another solution: Take currency out of the equation. That is the goal of Deutsche X-trackers MSCI EAFE Hedged Equity (DBEF). The exchange-traded fund tracks the foreign-stock MSCI EAFE index but uses futures contracts to neutralize the impact of currency fluctuations.
With currency moves off the table, the ETF’s return is driven solely by the performance of its stock holdings. “You’re investing like a local,” says Deutsche ETF strategy head Dodd Kittsley. Over the past year, Hedged Equity has licked iShares MSCI EAFE ETF (EFA), which doesn’t hedge, by 8.6 percentage points.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Not surprisingly, investors are flocking to currency-hedged funds. Assets in the Deutsche ETF have more than quintupled over the past year, to $1.3 billion. Just keep in mind that if currency trends reverse course, you may regret owning a fund that doesn’t benefit from a drop in the buck.
-
What Is a Qualified Charitable Distribution (QCD)?Tax Breaks A QCD can lower your tax bill while meeting your charitable giving goals in retirement. Here’s how.
-
Embracing Generative AI for Financial SuccessGenerative AI has the potential to reshape how we approach learning about and managing our personal finances.
-
The 5 Best Actively Managed Fidelity Funds to Buy Nowmutual funds In a stock picker's market, it's sometimes best to leave the driving to the pros. These Fidelity funds provide investors solid active management at low costs.
-
The 12 Best Bear Market ETFs to Buy NowETFs Investors who are fearful about the more uncertainty in the new year can find plenty of protection among these bear market ETFs.
-
Don't Give Up on the Eurozonemutual funds As Europe’s economy (and stock markets) wobble, Janus Henderson European Focus Fund (HFETX) keeps its footing with a focus on large Europe-based multinationals.
-
Best Bond Funds to BuyInvesting for Income The best bond funds provide investors with income and stability – and are worthy additions to any well-balanced portfolio.
-
Vanguard Global ESG Select Stock Profits from ESG Leadersmutual funds Vanguard Global ESG Select Stock (VEIGX) favors firms with high standards for their businesses.
-
Kip ETF 20: What's In, What's Out and WhyKip ETF 20 The broad market has taken a major hit so far in 2022, sparking some tactical changes to Kiplinger's lineup of the best low-cost ETFs.
-
ETFs Are Now Mainstream. Here's Why They're So Appealing.Investing for Income ETFs offer investors broad diversification to their portfolios and at low costs to boot.
-
Do You Have Gun Stocks in Your Funds?ESG Investors looking to make changes amid gun violence can easily divest from gun stocks ... though it's trickier if they own them through funds.
