San Francisco-based iShares, the biggest issuer of exchange-traded funds, recently expanded its offerings in the emerging-market niche with the launch of the iSharesCurrency Hedged MSCI Emerging Markets ETF (HEEM).
The new fund is the currency-hedged edition of BlackRock’s popular emerging-market focused iShares MSCI Emerging Markets ETF (EEM) and should find favor with investors who wish to protect their earnings from a surging dollar.
The passively-managed fund tracks the MSCI Emerging Markets 100 percent USD Hedged Index and consists of large- and mid-cap common stocks from companies across more than 20 EM countries including South Korea, Taiwan, Russia, India, China, Brazil, Czech Republic, Hungary, Greece, Colombia, Peru, Poland, Qatar, Chile, Malaysia, South Africa, Mexico, the Philippines, Turkey etc.
EEM seeks to provide local-currency performance while mitigating exposure to fluctuations between the value of the component currencies and the greenback. The underlying index consists of companies primarily from energy, financials and information technology. Country-wise, China gets the maximum exposure, followed by South Korea and Brazil.
HEEM generally invests 80 percent of its assets in securities of the underlying index and in depository receipts representing the underlying index. The fund may concentrate its investments (hold more than 25 percent of its total assets) in a particular industry or group of industries if the underlying index follows a similar strategy.
To hedge against non-dollar fluctuations of the equity portfolio, the fund sells forward contracts equal to the total value of the non-dollar denominated securities in the basket at a one month forward rate. The hedge is renewed every month.
With the world’s leading central banks following diverging monetary policies, the fund is likely to offer an efficient and cost-effective solution in a single transaction.
The fund is likely to face competition from the Deutsche X-trackers MSCI Emerging Markets Hedged Equity ETF (DBEM). However, competition at the broader emerging market space is still less compared country specific hedged ETFs.
HEEM has an annual expense ratio of 0.70 percent.
Disclosure: No holdings