ETF hedge FX differences

[seppel05]

Hi there,

Can someone please explain to me how to compare FX hedged ETFs across different tranches? For reference, I am looking at the iShares Global Corporate Bond UCITS ETF and its tranches that are hedged against the USD (CRPU), the EUR (CRPH) and GBP (CRHG).

When I look at the YTD performance in the respective currencies, I get the following:
- CRPU (in USD): +0.53%
- CRPH (in EUR): -0.47%
- CRHG (in GBP): -0.87%

Should - in theory - the performance not be the same for all 3? What explains the difference? The hedging costs? And if so, do those really make up >1% for a period of 4 months?

 

[rekhib]

Hi there,

I might be able to help you here. There are a few different factors in play across these 3 products:

- CRPU is an accumulating ETF while CRPH and CRHG are distributing meaning CRPU will retain and reinvest any income so if the yield is e.g. 2.5%, over a year, all else being equal, this product will be up 2.5% compared to the others. With CRPH and CRHG, you'll get that 2.5% as income.

- They're hedged products so the return will be different depending on how the currency performs. E.g. if you buy the GBP version CRHG, you're basically making a bet on Sterling as well as the ability of the companies to pay their coupons. Sterling is about 3% lower than the Euro compared to the start of the year so that's why CRHG has performed worse than CRPH. Hedging won't mitigate all the currency swings.

- The cost and timing of the hedging will impact on the return as well as you've said.

I hope that information helps!

All the best.