Strength of Currency-Hedged ETFs Amidst Exchange Rate Volatility
The recent increase in the volatility of the Korean won to U.S. dollar exchange rate has driven the strong performance of currency-hedged U.S. ETFs. The KODEX U.S. Nasdaq 100(H) has climbed 20.4% over the past month, significantly outperforming its non-hedged counterpart, KODEX U.S. Nasdaq 100, which rose 15.1%. This suggests that currency-hedged ETFs have efficiently offset exchange rate risk, prompting experts to recommend diversified investments in these products to counter market volatility.
Despite the currency hedging cost standing at approximately 2.1% annually, the current rate drop context has more than covered this cost. Institutional investors managing large-scale overseas assets are increasingly favoring currency hedging to protect against valuation losses. Financial experts foresee the further potential decline of the dollar-won exchange rate, thus bolstering interest in currency-hedged instruments.
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'I should have hedged'… Overseas ETF Returns Diverge Due to Rapid Dollar Decline - Yonhap InfomaxDespite a swap cost of 2% per annum, the decline in the exchange rate is larger… Hedge-type ETFs 'hold their ground.' As the USD-KRW exchange rate has plunged over 100 won in a short period, the returns of overseas ETFs tracking the same underlying assets differ sharply depending on whether they are hedged or not. ◇ Exchange rate drops by 100 won… Hedge ETFs outperform by over 5 percentage points compared to non-hedged ETFs. On the 7th, the USD-KRW exchange rate is trading at the 1,380 won level in the Seoul Forex market, having briefly dropped to 1,379.70 won earlier. This is a significant fall from the year-high of 1,487.60 won recorded last month on the 9th.