BlackRock Adds Currency-Hedged ETFs as Volatility Saps Gains

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BlackRock Inc., the world’s largest money manager, is adding 11 exchange-traded funds that are designed to help U.S. investors counter the effect of currency volatility on overseas returns.

The funds will invest in stock markets including those in Spain, Mexico and South Korea, while hedging against losses from exchange-rate fluctuations, according to Jane Leung, the San Francisco-based head of precision exposures at iShares, BlackRock’s ETF unit. The ETFs begin trading on the New York Stock Exchange on Wednesday.

Investors have directed more than $40 billion into similar funds in the U.S. this year, up from $9 billion in 2014, as sharp moves in foreign-exchange rates threaten to erode international returns when converted back to dollars. That’s prompted fund companies to target this niche, with State Street Corp. and WisdomTree Investments Inc. both listing hedged ETFs in June.

“It’s critical that investors start looking at how to mitigate the currency risk, or the volatility, in their portfolio,” Leung said by phone Tuesday. “They’re starting to see a negative effect as a result of currency and they’re starting to question, ‘why is that?’”

Currency Moves

The euro and the yen have plunged more than 17 percent versus the dollar during the past year as monetary policy in Europe and Japan diverges from that in the U.S.

That’s weighed on international investment returns. While BlackRock’s unhedged European ETF, for example, has gained 5.1 percent this year, its hedged equivalent has returned 13 percent.

BlackRock listed its first currency-hedged funds in February 2014, boosting its offerings to five ETFs by Dec. 31. Those funds have attracted $6.6 billion this year, data compiled by Bloomberg show.

BlackRock seeks to add market share with eight ETFs focused on specific countries -- Spain, Italy, the U.K., Switzerland, Canada, Mexico, Australia and South Korea -- as well as three broader products.

More may follow, Leung said. “There are definitely some in the pipeline that we’re investigating,” she said.

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