IQ 50 Percent Hedged FTSE Europe ETF (NYSE Arca: HFXE), and IQ 50 Percent Hedged FTSE Japan ETF (NYSE Arca: HFXJ).
“The FTSE 50% Hedged Index Series is designed to assist our clients in gaining a more complete understanding of the impact of currency on their international equity portfolios and we are excited that IndexIQ has chosen FTSE Russell as they offer 50% currency hedged ETFs to their clients.”
Until now, most investors have had two choices in getting exposure to international equity ETFs: 100% currency hedged or completely unhedged. By definition, use of fully hedged or unhedged exposure requires that investors make an implicit call on the future direction of the U.S. dollar versus foreign currencies. IndexIQ’s new ETFs take a neutral approach, with a 50% currency hedge.
“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 Chief Executive Officer and Co-Founder of IndexIQ, Adam Patti. “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.”
President of New York Life Investment Management and MainStay Investments, Stephen Fisher added, “In the current and uncertain investment environment, investors are in need of the right solutions to manage their currency exposures. We are pleased to offer the first-ever suite of 50% currency hedged ETFs to the retail and institutional marketplace. These innovative solutions are significant additions to MainStay’s robust mutual fund and ETF line-up and 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.” This is explored in a new white paper entitled, “Hedge of least regret: The benefits of managing international equity currency risk with a 50% hedging strategy,” authored by Robert Whitelaw, IndexIQ’s Chief Investment Strategist and Professor of Entrepreneurial Finance and Chair of the Finance Department at New York University’s Stern School of Business, in coordination with IndexIQ. The paper explains that between 2005 and 2014, there were five calendar years when the value of a basket of foreign currencies decreased versus the U.S. dollar (a situation when a currency hedged approach would have provided better returns) and five calendar years when the value of that same basket of currencies increased versus the U.S. dollar (when an unhedged approach would have provided better returns).1 As the paper notes, there is no discernible pattern when it comes to currency returns over calendar year periods, or simply the short term. Further, given the relatively short average holding periods of investors in specific investment vehicles, they are at risk of mistiming the currency trend and investing in the wrong version of hedged or un-hedged at the wrong time. The 50% approach alleviates the market timing issue for investors. The entire whitepaper can be viewed at IQetfs.com.
According to Mr. Patti, “The hedging solution offered by HFXI, HFXE and HFXJ removes the need to buy unhedged and 100% hedged ETFs to create a neutral 50% hedge; 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, which also introduces unnecessary trading costs and tax implications. Our new ETFs help solve this problem and we see them as important options for investors and look to build upon this theme in the future.”
The three new ETFs track indexes from FTSE, a global leader in indexing:
- 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. There is no assurance these objectives will be met.
In each case, approximately half of the respective index exposure is hedged against the U.S. dollar on a monthly basis.
“In recent years, currency has become an increasingly important factor in global equity portfolios and our clients are asking for currency hedged benchmarks that go beyond the 100% hedge ratio available today,” said Ron Bundy, CEO Benchmarks North America, FTSE Russell. “The FTSE 50% Hedged Index Series is designed to assist our clients in gaining a more complete understanding of the impact of currency on their international equity portfolios and we are excited that IndexIQ has chosen FTSE Russell as they offer 50% currency hedged ETFs to their clients.”
IndexIQ has a long track record of bringing innovative index-based solutions to market, including a suite of hedge fund replication ETFs, expanded earlier this year, which allow investors to construct their own diversified, hedge fund-style portfolio. The firm’s flagship ETF, IQ Hedge Multi-Strategy Tracker ETF (NYSE Arca: QAI), has more than $1 billion in assets as of June 30, 2015.
1 Source: FTSE. FTSE Developed ex North America 100% Hedged to USD Index less the FTSE Developed ex North America Index, annual returns, 2005 – 2014.
IndexIQ is a pioneer and leading provider of innovative investment solutions focused on absolute return, real assets, and international strategies. IndexIQ’s solutions are offered as ETFs, mutual funds, separately managed accounts, and ETF model portfolios. The company’s philosophy is to democratize investment management by providing all investors with cost-effective access to the types of high-quality, sophisticated investment products that typically have been reserved for institutional and ultra high-net-worth investors. Founded upon cutting-edge academic research, IndexIQ’s mission is to take indexing to the next level by combining the best attributes of both passive and active investing, and make strategies available to investors in low cost, liquid, and transparent products*. IndexIQ is an indirect, wholly-owned subsidiary of New York Life Insurance Company. Additional information about the IndexIQ and its products can be found at IQetfs.com.
About MainStay Investments
With over $93.8 billion in assets under management as of June 30, 2015 across retail mutual funds, exchange traded funds (ETFs) and variable product sub-accounts, MainStay Investments is the mutual fund and ETF distribution arm of New York Life Insurance Company. MainStay provides access to a powerful mix of autonomous, institutional investment managers, delivered by experienced professionals who understand the needs of today’s investors. For more information on MainStay Investments, please visitwww.mainstayinvestments.com
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business.
About New York Life Insurance Company
New York Life Insurance Company, a Fortune 100 company founded in 1845, is the largest mutual life insurance company in the United States* and one of the largest life insurers in the world. New York Life has the highest possible financial strength ratings currently awarded to any life insurer from all four of the major credit rating agencies: A.M. Best (A++), Fitch (AAA), Moody’s Investors Service (Aaa), Standard & Poor’s (AA+).** Headquartered in New York City, New York Life’s family of companies offers life insurance, retirement income, investments and long-term care insurance. New York Life Investments*** provides institutional asset management. Other New York Life affiliates provide an array of securities products and services, as well as retail mutual funds. Please visit New York Life’s website at www.newyorklife.com for more information.
*Based on revenue as reported by “Fortune 500 ranked within Industries, Insurance: Life, Health (Mutual),” Fortune magazine, 6/15/15. For methodology, please see http://fortune.com/fortune500/.
**Individual independent rating agency commentary as of 7/1/15.
***New York Life Investments is a service mark used by New York Life Investment Management Holdings LLC and its subsidiary, New York Life Investment Management LLC.
Consider the Funds’ investment objectives, risks, and charges and expenses carefully before investing. The prospectus and the statement of additional information include this and other relevant information about the Funds and are available by visiting IQetfs.com or calling 888-934-0777. Read the prospectus carefully before investing.
IndexIQ® is the indirect wholly owned subsidiary of New York Life Investment Management Holdings LLC. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs and the principal underwriter of the mutual fund. NYLIFE Distributors LLC is located at 169 Lackawanna Ave, Parsippany, NJ 07054. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC. NYLIFE Distributors LLC is a Member FINRA/SIPC.
Index performance does not reflect charges and expenses associated with the Funds or brokerage commissions associated with buying and selling ETF shares. One cannot invest directly in an index.
IQ 50 Percent Hedged FTSE Europe ETF
Because the Fund invests primarily in the securities of companies in Europe, the Fund’s performance is expected to be closely tied to social, political, and economic conditions within Europe and to be more volatile than the performance of more geographically diversified funds. As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program.
IQ 50 Percent Hedged
FTSE Japan ETF
Because the Fund invests primarily in the securities of companies in Japan, the Fund’s performance is expected to be closely tied to social, political, and economic conditions within Japan and to be more volatile than the performance of more geographically diversified funds. The Japanese economy has only recently emerged from a prolonged economic downturn. Since the year 2000, Japan’s economic growth rate has remained relatively low.
IQ 50 Percent Hedged FTSE International ETF
As with all investments, there are certain risks of investing in the Fund. The Fund’s Shares will change in value and you could lose money by investing in the Fund. An investment in the Fund does not represent a complete investment program.
The Fund(s) will invest in securities denominated in currencies other than U.S. dollars (foreign currencies) and much of the income received by the Fund will be in foreign currencies, but the Underlying Index and the Fund’s NAV will be calculated in U.S. dollars. Furthermore the Fund(s) may convert cash in U.S. dollars to foreign currencies to purchase securities. Both the Fund’s ability to track the Underlying Index and Fund returns in general may be adversely impacted by changes in currency exchange rates, which can occur quickly and without warning. The Fund uses various strategies to attempt to reduce the impact of changes in the value of a foreign currency against the U.S. dollar. These strategies may not be successful.
Derivatives are investments whose value depends on (or is derived from) the value of an underlying instrument, such as a security, asset, reference rate or index. Derivatives may be difficult to sell, unwind or value. The Fund(s) invests in the securities of non-U.S. issuers, which securities involve risks beyond those associated with investments in U.S. securities.
The performance of the Underlying Index and the Fund(s) may deviate from that of the markets the Underlying Index seeks to track due to changes that are reflected in the sector more quickly than the quarterly rebalancing process can track. Securities in the Underlying Index or in the Fund’s portfolio may also under perform in comparison to the general securities markets. The strategy used by the Advisor to match the performance of the Underlying Index may fail to produce the intended results.
Mid capitalization companies are generally less established and their stocks may be more volatile and less liquid than the securities of larger companies.
As a new fund(s), there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels or it could ultimately liquidate.
As with all investments, there are certain risks of investing in the Fund(s). The Fund’s Shares will change in value and you could lose money by investing in the Fund(s). An investment in the Fund does not represent a complete investment program.
IQ Hedge Multi-Strategy Tracker ETF (NYSE Arca: QAI)
The Fund’s investment performance, because it is a fund of funds, depends on the investment performance of the underlying ETFs in which it invests. There is no guarantee that the Fund itself, or any of the ETFs in the Fund’s portfolio, will perform exactly as its underlying index. The Fund’s underlying ETFs invest in: foreign securities, which subject them to risk of loss not typically associated with domestic markets, such as currency fluctuations and political uncertainty; commodities markets, which subject them to greater volatility than investments in traditional securities, such as stocks and bonds; and fixed income securities, which subject them to credit risk – the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt – and interest rate risk – changes in the value of a fixed-income security resulting from changes in interest rates. Leverage, including borrowing, will cause some of the Fund’s underlying ETFs to be more volatile than if the underlying ETFs had not been leveraged.