Dal 2012, WisdomTree is a leader in helping investors to understand the impact that currency risk can have on their portfolios. From this point of view, it should be remembered that when investors allocate funds to international markets, there are two possible sources of return: the return deriving from the performance of local assets and the return from changes in exchange rates (FX).
However, this can be problematic in times when foreign currencies weaken against the investor’s home currency, resulting in underperformance.
With this in mind, WisdomTree’s newest ETF offering to investors the currency hedging option is the WisdomTree Global Quality Dividend Growth UCITS ETF with EUR and GBP share classes, listed on the London Stock Exchange, Borsa Xetra and Borsa Italiana.
In detail, we are talking about:
• WisdomTree Global Quality Dividend Growth UCITS ETF – GBP Hedged (GGRB)
• WisdomTree Global Quality Dividend Growth UCITS ETF – EUR Hedged Acc (GGRE e WGRU)
How does currency hedging work?
Currency hedging aims to minimize the risk associated with fluctuations in foreign currencies in which non-domestic investments are denominated.
There are two main phases of currency hedging:
- At some point in time, investors have to sell forward (i.e. at a future point in time) the currency in which the international investments are denominated. This eliminates the currency risk for the term of the FX forward.
- From time to time, the portfolio manager has to arrange for the rolling of his FX forward to maintain coverage. For example, a portfolio manager with the euro as a base currency and a $1 million investment in US stocks can hedge the currency risk of the US dollar by selling a forward contract of 1 million dollars against the euro with settlement in one month at today’s exchange rate.
However, from an operational standpoint, this process can be quite cumbersome, particularly for a multi-currency wallet and/or hard-to-access currencies.
The MSCI World includes 13 currencieswhich means that investors should trade 12 FX forwards whenever they want to hedge currency exposure and then should roll these 12 forwards on a regular basis.
For this reason WisdomTree has launched currency hedged share classes for its strategies, providing ready-to-use solutions for investors and their currency hedging needs.