BlackRock, the asset manager behind the iShares brand of exchange-traded funds, has expanded its range of currency-hedged ETFs with the introduction of five smart beta funds based on MSCI indices.
BlackRock’s five new ETFs offer currency-hedged access to low volatility and small cap international equities.
Four of the five funds are currency-hedged versions of existing minimum volatility ETFs. These funds offer US dollar-based investors international equity exposure targeted at companies which have historically exhibited relatively low levels of price variation. The fifth fund offers currency-hedged exposure to European small-capitalisation stocks.
The introduction of a currency-hedging overlay provides investors with another level of risk management. By mitigating exposure to fluctuations in currencies outside the US, the funds can avoid lost returns which can come as a result of a strengthening dollar. Conversely, they will underperform unhedged strategies in the event of dollar weakness.
Robert Nestor, Managing Director and Head of iShares Smart Beta Strategy at BlackRock, commented: “Extending the suite to include currency-hedged funds means those investors looking for broad minimum volatility exposure now have the added flexibility to do so on a hedged or unhedged basis, depending on their preferences.”
Diana Tidd, Managing Director and Global Head of MSCI Equity Index Products, added: “With the continued growth of global investing, the importance of managing currency exposures has moved to the forefront of many investors’ minds. Likewise, a growing number of investors are targeting specific factor exposures such as low volatility. MSCI’s Minimum Volatility 100% Hedged to USD Indexes reflect the performance of the combination of these two investment strategies. We are pleased BlackRock has further expanded their suite of iShares ETFs based on MSCI Minimum Volatility Indexes.”
The iShares minimum volatility ETFs are designed to help investors weather the ups and downs of the market whilst staying invested, offering the potential for lower risk and long-term growth. Low volatility strategies have also historically provided excess returns over market-capitalisation weighted benchmarks.
Small-capitalisation stocks can also provide the opportunity for excess returns over larger-cap stocks, although this does come at higher levels of risk given the cyclical nature of less developed companies. Small-cap stocks tend to outperform in rising markets and underperform falling markets so in a sense can be thought of as leveraged plays on broad equity market exposure.
Each new fund holds its unhedged ‘parent’ iShares ETF and implements foreign currency forwards. They may benefit from the liquidity of the underlying iShares ETFs in which they invest, whilst also seeking to reduce the impact of international currency movements relative to the US dollar.
The funds are listed on the BATS ETF Marketplace exchange and carry gross expense ratios ranging from 0.53% to 1.03%. The current net expense ratios range from 0.23% to 0.43%.
iShares Currency Hedged MSCI ACWI Minimum Volatility ETF (HACV)
iShares Currency Hedged MSCI EAFE Minimum Volatility ETF (HEFV)
iShares Currency Hedged MSCI EM Minimum Volatility ETF (HEMV)
iShares Currency Hedged MSCI Europe Minimum Volatility ETF (HEUV)
iShares Currency Hedged MSCI Europe Small-Cap ETF (HEUS)