A Strong Dollar Lifts Currency-Hedged Funds. There’s a Better Reason to Own Them.
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Jun 12 2024
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Source: MarketWatch
- Currency Risk in International Funds: Owning international funds exposes investors to currency risk, especially when the dollar is strong, impacting corporate returns due to translation of foreign revenue into fewer dollars.
- Performance of Currency-Hedged ETFs: Currency-hedged exchange-traded funds are outperforming unhedged funds by neutralizing foreign-exchange impacts. For example, the iShares Currency Hedged MSCI EAFE ETF has shown a 13.9% return year to date compared to the 7.8% return of the unhedged iShares MSCI EAFE ETF.
- Dollar Strength Impact: The current strength of the dollar is affecting corporate returns negatively as foreign earnings translate into lower dollar amounts.
- Comparison of Hedged and Unhedged Funds: The $6.4 billion iShares Currency Hedged MSCI EAFE ETF has demonstrated better performance than the $54.4 billion iShares MSCI EAFE ETF due to its hedging strategy.
- Investor Considerations: Investors should be aware of currency risks when investing in international funds and consider the impact of currency fluctuations on their returns.
Analyst Views on EFA
Wall Street analysts forecast EFA stock price to rise over the next 12 months. According to Wall Street analysts, the average 1-year price target for EFA is USD with a low forecast of USD and a high forecast of USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
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About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
