Protecting Investments in Emerging Markets: A Guide for Investors

As an investor looking to capitalize on emerging market opportunities, it’s crucial to consider the impact of currency fluctuations on your investments. In a recent interview on CNBC’s “ETF Edge,” Ben Slavin, global head of ETFs and managing director at BNY, highlighted the importance of hedging strategies when investing in overseas markets.

While inflows into Indian, European, and Japanese ETFs have been significant, Slavin emphasized the need to factor in the strength of the U.S. dollar. Currency movements can significantly impact the returns of your investments, so it’s essential to determine whether you want to be hedged or unhedged to mitigate risks.

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For example, Slavin pointed out the difference between the iShares MSCI Japan ETF (EWJ) and the WisdomTree Japan Hedged Equity Fund (DXJ). While the EWJ provides exposure to Japanese equities without accounting for currency fluctuations, the DXJ hedges against fluctuations between the Japanese yen and the U.S. dollar. As a result, the DXJ has outperformed the EWJ, growing more than 20% this year compared to less than 4% for the EWJ.

When it comes to allocating your investments, Slavin recommends considering your views on the U.S. dollar and choosing ETFs that align with your hedging preferences. By understanding the impact of currency movements and utilizing the right ETFs, investors can enhance their returns and manage risk effectively in today’s dynamic market environment.

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