US multinational investment management corporation. BlackRock, has launched two new funds which provide investors with hedged exposure to European and Japanese equity markets respectively.
The newly unveiled iShares MSCI Europe ex-UK GBP Hedged Ucits ETF provides access to large and mid-cap companies from 14 developed European markets outside the UK, and designed for sterling investors looking to gain exposure to the region.
The iShares JPX-Nikkei 400 Euro Hedged Ucits ETF tracks an index of Japanese companies with attractive fundamentals, according to the company.
A spokesman said that the fund’s underlying index screens for highly liquid companies with strong return-on-equity and robust corporate governance practices.
The iShares JPX-Nikkei 400 Euro Hedged Ucits ETF has a total expense ratio of 0.45 per cent, and 0.40 per cent for the iShares MSCI Europe ex-UK GBP Hedged Ucits ETF.
Both funds are physically replicating - meaning they buy the underlying stocks in the index.
Last month, BlackRock launched an iShares MSCI Target UK Real Estate Ucits ETF, which is aimed to accurately reflect the characteristics of physical property while preserving the liquidity and ease of access of a real estate investment trust (Reits).
In February, the firm expanded its fixed income and equity ranges with the launch of two ETFs that look to give highly targeted exposure to the European corporate bond market and to US companies undertaking a buyback strategy to drive shareholder returns.
Provider view
Tom Fekete, head of product for iShares in EMEA, said: “The total return that European and UK investors receive on non-European or non-UK securities depends on both asset returns and currency movements. ETFs that employ built-in currency hedging can help mitigate fluctuations in exchange rates in one simple, liquid and transparent trade and thereby avoid the need to hold and maintain separate hedging programmes.
“We continue to see positive data out of Europe, helped by Quantitative Easing (QE), while Japan remains one of the best performing markets year-to-date, supported by recent corporate reform. The newly launched products complement our suite of ETFs that investors can use to access positive market sentiment or to express longer term views, while minimising currency risk.”
Adviser view
Marvin Evans, principal at Old Bank Wealth Management, based in Gloucestershire, said: “If you are a UK investor you do not want to be caught out by changes in currency. Having funds which hedge currency is good for the investor as they protect against unexpected changes in currency exchange rates.”
Claiming that the demand for ETFs is likely to increase following the pension freedoms, Mr Evans added: “It will be interesting to see whether ETFs will be included as default funds in auto-enrolment.”
Charges
Total Expense Ratio of 0.45 per cent for the iShares JPX-Nikkei 400 EUR Hedged Ucits ETF and 0.40 per cent the iShares MSCI Europe ex-UK GBP Hedged Ucits ETF.
Verdict
Limiting the impact of foreign exchange currency risk is a key area to many investors when conducting business internationally. For these individuals, the new currency hedged ETFs by BlackRock could be viable investment options – which is partly thanks to the reasonable total expense ratios.
A school of thought has predicted the rise in demand for ETFs following the implementation of the pensions freedom because of the relatively low operational costs and investment transparency offered by ETFs.