Investors may want to consider hedging their emerging market plays, according to one exchange-traded fund expert.
Ben Slavin, global head of ETFs and managing director at BNY, said that while there have been notable inflows into Indian, European and Japanese ETFs, investors should account for the strength of the U.S. dollar.
“You have to look at the impact of the dollar on those returns, depending on whether you want to be hedged or unhedged because it’s a very important driver of where things will go looking forward,” Slavin told CNBC’s “ETF Edge” on Monday.
One area he pointed to is the levels between the U.S. dollar vs. the Japanese yen.
The iShares MSCI Japan ETF (EWJ) gives investors exposure to Japanese equities but does not account for fluctuations between the Japanese yen and the U.S. dollar. It’s grown less than four percent this year.
The WisdomTree Japan Hedged Equity Fund (DXJ), which gives exposure and accounts for fluctuations, has grown more than 20% in that same time frame.
“It’s very important to make that decision about how to allocate, especially as it comes to your views on the dollar. And ETFs have those different options available for investors to allocate one way or the other,” Slavin said.
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