IndexIQ Partners with Mainstay for Novel Currency-Hedged Funds

Jul 22 2015 | 3:26pm ET

IndexIQ’s has launched three new ETFs in partnership with New York Life’s MainStay Investments. They are the first of their kind to offer 50% hedging against the U.S. dollar’s impact on foreign equity markets. 

The three funds, named the IQ 50 Percent Hedged FTSE International ETF, the IQ 50 Percent Hedged FTSE Europe ETF, and IQ 50 Percent Hedged FTSE Japan ETF, allow investors to take a more neutral approach when engaging these markets. Previously, they were faced with only two choices when hedging exposure to international equity ETFs: 100% hedged or completely unhedged. This in turn requires investors make implicit calls on the future direction of the U.S. dollar versus foreign currencies. 

The three funds will trade under the symbols HFXI, HFXE, HFXJ, respectively.

“Our research has shown that 50% hedged portfolios have the potential to capture up to 80% of the risk reduction benefits of a fully hedged approach, while potentially securing steadier performance, regardless of exchange rate fluctuations,” said IndexIQ co-founder and CEO Adam Patti in a statement.  “With the launch of these new funds, investors can now easily add tax-efficient, neutral positioning at the core of their international equity portfolios that is neither actively bullish nor bearish on the direction of the U.S. dollar or foreign currencies.” 

MainStay’s president, Stephen Fisher, added, “We are pleased to offer the first-ever suite of 50% currency hedged ETFs to the retail and institutional marketplace. These solutions are designed to provide exposure to the important asset class of international equities with a beneficial hedge that dampens relative volatility.”  

According to IndexIQ’s latest research, currency valuations have fluctuated dramatically over shorter time periods - an unpredictability that makes it difficult to know when to go “hedge on” versus “hedge off.”  According to a new white paper written by IndexIQ’s CIO Robert Whitelaw, there were five calendar years between 2005 and 2014 when the value of a basket of foreign currencies decreased versus the U.S. dollar and five when the value of that same basket of currencies increased. The paper notes that there is no discernible pattern to currency returns over calendar year periods, meaning investors are at risk of mis-timing currency trends and being hedged or un-hedged at the wrong time.

The new 50% approach available through these ETFs alleviates this market timing issue, according to the company.

The hedging solution offered by these ETFs removes the need to buy unhedged and 100% hedged ETFs to create a neutral 50% hedge, according to Patti, which is an ideal portfolio position given the difficulty in forecasting currency movements.  

“This neutral position would historically have required an investor to spend time regularly rebalancing between two separate investments,” he continued. “This introduces unnecessary trading costs and tax implications. Our new ETFs help solve these problems.”

The three new vehicles track FTSE indices as follows:

  • HFXI seeks to track the performance of the FTSE Developed ex North America 50% Hedged to USD Index, which is made up primarily of large- and mid-cap companies in Europe, Australasia and the Far East;
  • HFXE seeks to track the performance of the FTSE Developed Europe 50% Hedged to USD Index, which is made up of equities from 17 developed European countries; and
  • HFXJ seeks to track the performance of the FTSE Japan 50% Hedged to USD Index, which is made up of Japanese equities.


In each case, approximately half of the respective index exposure is hedged against the U.S. dollar on a monthly basis. 

Rye, NY-based Index IQ is an issuer of alternative products offered as indexes, ETFs, mutual funds, SMAs and model portfolios. It had more than $1.5 billion in assets under management on January 1, 2015, $1 billion of which is in the firm’s flagship ETF, the IQ Hedge Multi-Strategy Tracker ETF. IndexIQ was bought by New York Like in December 2014.

Mainstay, meanwhile, is the mutual fund and ETF distribution arm of New York Life Insurance Company, and has nearly $94 billion in assets under management as of June 30, 2015.

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