For those investigating the prospects of emerging economies, it is wise to employ tactics that reduce exposure to risk, as recommended by an experienced ETF authority.
Ben Slavin, a distinguished expert in the ETF domain at BNY and managing director, underscored the vigorous capital inflows into regions like India, Europe, and Japan. But he warned that such initiatives should recognize the dominant sway of the U.S. dollar.
“One ought to weigh the dollar’s sway over returns on investments when settling on hedged or unhedged currency positions, given its pivotal influence in determining market prospects,” Slavin noted during a segment on CNBC’s “ETF Edge” this past Monday.
In particular, Slavin called attention to the exchange rate movements, especially between the U.S. dollar and the Japanese yen.
The iShares MSCI Japan ETF (EWJ) permits participation in the Japanese markets but offers no shelter against yen-dollar volatility, leading to a nominal increase of under four percent over the course of a year.
On the other hand, the WisdomTree Japan Hedged Equity Fund (DXJ), which accounts for shifts in currency values, has experienced a growth exceeding 20% in the same timeframe.
Slavin accentuates the importance of judicious investment decisions, particularly with respect to the forecasted behavior of the U.S. dollar. He indicates that ETFs present investors with diverse options to tailor their investment based on their outlook on currency trends.
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