IndexIQ: Currency Volatility On The Rise

June 01, 2016

[The following "ETF Industry Perspective" is sponsored by IndexIQ]
 

Solutions To Consider
  • IQ 50 Percent Hedged FTSE International ETF (HFXI)
  • IQ 50 Percent Hedged FTSE Europe ETF (HFXE)
  • IQ 50 Percent Hedged FTSE Japan ETF (HFXJ)

For more solutions and tools for managing volatility, visit mainstayinvestments.com/volatility

 

  • The combination of global economic uncertainty and divergent central bank policy has led to an increase in global currency volatility (see Figure 1). Highlights include the Bank of Japan's unexpected announcement of a negative interest rate policy and the continued discussion surrounding China's currency valuation.
  • After moving in a single upward direction for all of 2014 and the first quarter of 2015, the U.S. Dollar Index has since been increasingly volatile.
  • The increase in volatility since mid-March 2015 has been accompanied by a 3.67% decline in the value of the U.S. Dollar Index, putting a drag on fully currency-hedged international equity portfolios.
  • During the prior period—2014 to March 2015—international equity portfolios without a currency hedge were hurt by a strengthening U.S. dollar.
  • There are steps investors can take to help manage currency volatility, such as putting portfolios in a currency-neutral position—50% hedged—eliminating the need to make a currency call.

 


Source: Bloomberg, as of 2/1/16. U.S. Dollar Index (DXY) is a measure of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partner's currencies. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.

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