One of the most common myths about hedging foreign currencies is that it’s expensive. Misnomers persist about the cost associated with the financial contracts that are used to hedge foreign exchange exposures. While there may be a desire to hedge, some investors mistakenly believe the cost involved always puts them at a disadvantage.
Japanese equities have been among the best performing global markets since late 2012.1 The depreciation of the yen and the rise in equity prices have been widely noted. But looking under the hood, we’ve noticed another important change occurring in Japan.
Given the divergence of central bank policies, currencies are among the most important investment topics today. If the U.S. dollar continues to strengthen, it may be a headwind to U.S. multinationals earning revenue abroad, while boosting foreign companies that are earning revenue in the United States.
As HEDJ, the WisdomTree Europe Hedged Equity Fund recently crossed $15 billion in assets, we’ve been particularly interested to see how global exporters within Europe have been responding to a weaker euro.
A big theme of the last six months has been the strength of the U.S. dollar and the weakness of foreign currencies, especially the euro. The euro started trending down as it became increasingly clear that the European Central Bank (ECB) would engage in a more aggressive monetary policy to combat deflationary trends in the eurozone.