The Hidden Cost of International ETFs: How Much Currency Risk Actually Ate Into Returns Over the Last Decade
Hedging out currency exposure in an international stock ETF over the past decade would have saved thousands of dollars.
Overview
The iShares MSCI EAFE ETF (NYSEMKT: EFA) and the iShares Currency Hedged MSCI EAFE ETF (NYSEMKT: HEFA) are essentially the same portfolio and hold the same developed market stocks across Europe, Japan, and Australia. The only structural difference is their currency exposures. The first allows currency swings and accepts whatever effect they have on total returns. The latter strips out that currency risk.
Either one can work. It just depends on which risk exposure you prefer, and if you have a high conviction opinion as to whether the dollar will add to or reduce performance. Over the last decade, that difference between hedged and unhedged could have been worth thousands of dollars.
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Originally published at www.fool.com.