New hedged ETFs take away currency risk
Global funds have received a big boost with the Australian dollar falling. But when the dollar eventually rises, global funds will suffer. For investors who want insurance against a climbing currency, there are two new hedged exchanged exchange traded funds (ETFs), the iShares S&P 500 AUD Hedged ETF (ASX: IHVV) and the iShares Global 100 AUD Hedged ETF (IHOO).
The ETFs are local hedged versions of iShares' popular international ETFs that invest in big-brand global companies, the iShares Core S&P 500 ETF (IVV) and iShares Global 100 ETF (IOO). The S&P 500 fund invests in large-cap US companies such as Apple, Exxon Mobil, Microsoft, Johnson & Johnson, Berkshire Hathaway, Wells Fargo, General Electric and Pfizer. The biggest sector held by the ETF is information technology (20%) followed by financials (16%) and healthcare (15%).
The Global 100 invests in 100 large-cap global equities including Novartis, Nestle join Apple, Exxon Mobil, Microsoft, Johnson & Johnson, Pfizer and General Electric. Investors gain strong exposure to information technology, which makes make up 22% of the portfolio, while healthcare and financials are15%.
The big advantage of ETFs is their low price. These funds charge an annual fee of 0.13% and 0.46% respectively.
They join the Vanguard MSCI Index International Shares (Hedged) ETF (VGAD) and come at a time when the Australian dollar hit a six-year low, having shed 18.5% against the US
MONEY VERDICT
If your global investment funds were unhedged over the past 12 months, you would have profited nicely from a falling $A. The question is whether you continue with this strategy. It is never easy predicting the future direction of currencies. Keep an eye on comments about the $A from the governor of the Reserve Bank, Glenn Stevens. If currency movements make you nervous and you believe you will benefit from hedging your global shares against a rise in the $A, these ETFs are a low-cost, diversity.
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