Daily ETF Watch: New Breed Of Hedged Funds

iShares and WisdomTree are launching next-generation currency-hedged ETFs.

Reviewed by: Heather Bell
Edited by: Heather Bell

Today iShares and WisdomTree are each rolling out lineups of currency-hedged ETFs on the BATS exchange for which the hedges will be adjusted to respond to market conditions.

The three iShares funds, their tickers and expense ratios are as follows:

On a monthly basis, the iShares ETFs will use what the prospectuses term a "hedge ratio" to determine how much of a currency hedge they will each maintain. The hedge ratio is based on four equally weighted criteria: value, momentum, carry and volatility. A fund can be 0% hedged, 25% hedged, 50% hedged or 100% hedged.

Meanwhile, the four WisdomTree funds, their tickers and expense ratios are as follows:

The WisdomTree ETFs provide a more precise degree of currency hedging than the iShares funds. Although the hedging methodology only relies on three criteria—interest rate differentials, momentum and value—the hedges can range anywhere from 0% to 100%. As with the iShares ETFs, the degree to which each fund is hedged is recalculated on a monthly basis.

Beyond having somewhat different hedging methodologies, the two fund families track different types of indexes. The iShares ETFs are tied to benchmarks weighted by market capitalization, whereas the WisdomTree ETFs’ indexes are weighted by dividends. However, both families of funds have a similar range of expense ratios, with the iShares funds skewing slightly more expensive.

Contact Heather Bell at [email protected].

Heather Bell is a managing editor with etf.com. Prior to joining the company, she held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and a one-time Jeopardy! champion. She resides in the Denver area with her two dogs, and enjoys hiking in the mountains and frequenting the city’s excellent bookstores.