Liquid Alternatives: Investors Get Currency Hedged Versions of Vanguard’s Flagship Japan Fund

February 7, 2020 | Fund Updates, Liquid Alternatives
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Investors seeking currency-neutral exposure to Japanese stocks can invest in the new ETFs.

Vanguard has addressed a long-pending demand from European investors for currency-hedged versions of its Vanguard FTSE Japan ETF (VJPN).

The US Dollar hedge version, The Vanguard FTSE Japan USD Hedged ETF (VJPU), is listed on the London Stock Exchange and carries a total expense ratio of 0.20%.

However, the Euro hedge version, the Vanguard FTSE Japan EUR Hedged ETF (VJPE), is listed on the Deutsche Boerse with a total exchange ratio of 0.20%.

In contrast to these funds, the unhedged version has a total expense ratio of 0.15%. The VJPN provides exposure to large and medium-cap Japanese companies. By using the hedged versions, investors can iron out return skews caused by currency fluctuations.

Vanguard hedged Japan fund: About currency risk

When you invest in an ETF that holds foreign securities, you could run a risk from currency fluctuations. Previously, it was difficult for average investors to shield themselves from this risk. With the arrival of currency-hedged ETFs that is no longer the case – investors can protect themselves in a simple, cheap, and effective way.

Therefore, by using a hedged ETF, you can ring-fence your overseas investment from currency volatility. The value of your investment does not gain if the home currency (say, the USD) falls. Conversely, it does not lose value when the USD rises.

By charging you a slightly higher expense ratio, the hedged ETF manager will recover the expenses incurred to hedge the fund from currency risk. These expenses include trading spread, transaction costs and cost of carrying the position (or holding cost).

By this logic, the two Vanguard currency-hedged funds mentioned above protect from currency fluctuations.

Related Story:   Alternative Investments: This ETF Copycats Top Hedge Funds and Undercuts Their Fees

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