Investors should consider hedging Emerging Market investments

According to Ben Slavin, global head of ETFs and managing director at BNY, investors might want to consider hedging their emerging market investments. While there have been significant inflows into Indian, European, and Japanese ETFs, Slavin emphasises the importance of accounting for the strength of the U.S. dollar. He noted that the impact of the dollar on returns is crucial, depending on whether investors choose to hedge or not. This factor will significantly influence future market directions.

Slavin highlighted the exchange rate dynamics between the U.S. dollar and the Japanese yen. The iShares MSCI Japan ETF (EWJ) offers investors exposure to Japanese equities but does not consider the fluctuations between the yen and the dollar. This ETF has seen growth of less than four percent this year. In contrast, the WisdomTree Japan Hedged Equity Fund (DXJ), which provides exposure and accounts for currency fluctuations, has experienced growth of more than 20% over the same period.

Slavin stressed the importance of deciding on allocation strategies, particularly regarding views on the dollar. He pointed out that ETFs offer various options, allowing investors to allocate based on their preferences regarding currency exposure.

Fidelity Emerging Markets Limited (LON:FEML) is an investment trust that aims to achieve long-term capital growth from an actively managed portfolio made up primarily of securities and financial instruments providing exposure to emerging markets companies, both listed and unlisted.

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