SOURCE: Russell Investments

Russell Investments

September 17, 2015 10:47 ET

Currency Conundrum: New Index Tools for Investors Hedging Currency Exposure in International Portfolios

SEATTLE, WA--(Marketwired - Sep 17, 2015) - Since June 2014, the US dollar (USD) has risen significantly relative to other currencies. Improving indicators about the state of the U.S. economy, actions by the European Central Bank to stimulate the Eurozone and investor expectations that the U.S. Federal Reserve will begin raising interest rates have all contributed to a marked improvement in the valuation of the USD relative to other global currencies.

For the U.S. based investor, the strengthening of the USD is of particular concern. When foreign investments are unhedged, and as the dollar increases in value, international equity returns are reduced -- sometimes dramatically. FTSE Russell has responded to the request from investors for index tools to help them analyze their positions with the launch of a new series of five international equity indexes that apply a 50% hedge to the USD.

For US investors, un-hedged international investing embodies an expectation that the value of the US dollar will fall, whereas a 100% hedged approach implicitly assumes the dollar will strengthen. A 50% hedged approach represents a neutral view on US dollar direction. This new suite of indexes from FTSE Russell is unique in that it hedges against 50% of the fluctuations between the US dollar and the home currency of the underlying index constituents.

New research reports from FTSE Russell and Index IQ outline different aspects of the challenges facing investors interested in hedging currency exposure in international portfolios.

Ken O'Keeffe, MD of Global ETPs with FTSE Russell, said:

"Currency fluctuations are notoriously difficult to forecast. Some academics have supported a 50% hedge ratio, suggesting that it represents a neutral currency position. The FTSE 50% Hedged Index Series has been designed as a tool to assist investors in understanding and evaluating the currency exposures of their international equity investments."

The first three indexes in the FTSE 50% Hedged Index Series are based on the FTSE Developed ex-North America, FTSE Europe and FTSE Japan Indexes. In July, New York Life MainStay Investments, through its ETF arm Index IQ, launched three new ETFs based on the series of indexes from FTSE Russell.

Adam Patti, Chief Executive Officer of IndexIQ, said:

"We have found that investors can often fall into a 'currency conundrum,' recognizing that currency hedging can help manage the risks of large currency movements, but the extremes of either 100% hedged or 100% unhedged strategies introduce an inherent view on US dollar direction. Some investors have concluded that 50% hedged portfolios can potentially capture risk reduction benefits of a fully hedged approach regardless of dollar direction. By using the new FTSE Russell index tools, we can now offer ETFs that allow our clients to position their international equity portfolios in a way that is neither actively bullish nor bearish on the direction of the U.S. dollar or foreign currencies."

About FTSE Russell:
FTSE Russell is a global index leader that provides innovative benchmarking, analytics and data solutions for investors worldwide. FTSE Russell calculates thousands of indexes that measure and benchmark markets and asset classes in more than 80 countries, covering 98% of the investable market globally.

FTSE Russell index expertise and products are used extensively by institutional and retail investors globally. Leading asset owners, asset managers, ETF providers and investment banks use FTSE Russell indexes to benchmark their investment performance and create ETFs, structured products and index-based derivatives.

A core set of universal principles guides FTSE Russell index design and management: a transparent rules-based methodology is informed by independent committees of leading market participants. FTSE Russell is focused on applying the highest industry standards in index design and governance. FTSE Russell is also focused on index innovation and client collaboration as it seeks to enhance the breadth, depth and reach of its offering.

FTSE Russell is wholly owned by London Stock Exchange Group. For more information, visit

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Please note: Index IQ recently licensed the new FTSE 50% Currency Hedged Index Series as the basis for a new suite of currency-neutral ETFs.

Views expressed by Ken O'Keeffe and Adam Patti are as of September 17, 2015 and are subject to change. In addition, views expressed by Adam Patti do not necessarily reflect the views of FTSE Russell or the London Stock Exchange Group companies.

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