The Rise Of Currency Hedged ETFs

Money tends to follow and pile into the trade that is working now, at least in the short term. One of the best trades this year has been to purchase stocks in regions of the world still employing quantitative easing (Japan and Europe) with your currency position hedged. In other words, capture rising stock markets while protecting your exposure to their local currency declining in value against the U.S. dollar.

Investors have rushed into ETFs that employ this strategy. The following shows the rise of "currency hedged" ETFs, which reached $118 billion in size by July of this year. This is another great example of the extremely positive sentiment toward the U.S. dollar currently in place.

I personally do not like to buy into a trend that is already locked in place. I like to begin buying what I believe comes next (which usually means losses and the need for patience in the short term). I am looking toward emerging market bonds and currencies today; the part of the world everyone is running full speed away from.


  1. Tuna, what would your investment/action plan be if you lived in a country rife with political scandals, the currency depreciated by 30% against the usd in the past six months, spiraling government debt? Where would you place your investments/funds? Would you hold cash reserves in the local currency? Purchase gold/silver? Stake bargains out in the local stock market/real estate? Thanks.

  2. Replies
    1. I do not know enough about Malaysia or your particular financial situation/goals to provide you with specific investment advice. From a very, very big picture perspective I believe the Asian-Pacific countries are going to dominate global growth in the 21st century. Along the way, you will experience massive defaults, depressions, currencies declines, etc., which are occurring today in many of the emerging markets around the world. I would view these panics and declines as long term buying opportunities. I would take some solace in the fact that every government around the world is corrupt. There are no good ones. Some just hide it better with temporarily stronger economies and better performing bond markets (the U.S.). It appears that your country's government debt to GDP is about 50%, which is tremendous in comparison to most of the rest of the world. I would definitely hold some gold and silver, accumulate cash (I am holdings U.S. dollar cash while beginning to diversify into emerging market currencies) and accumulate rock solid companies (stocks) from around the world as prices continue to sell off.


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