How to Hedge ETF Currency Risk

(Bloomberg View) -- Investors deploying capital overseas take on the chance that currencies will move against them. Jeremy Schwartz, the research director at WisdomTree Investments Inc. and this week's guest on Masters in Business, wanted to minimize those risks.

Schwartz, who had responsibility for equity-index construction processes at the firm, began exploring ways to hedge currency risk about seven years ago. His research across the entire family of funds led him to Japan, where the country’s single market and single currency made it ideal for creating a hedge against the yen. Using WisdomTree’s Dividend-Weighted Japan fund as a base, Schwartz’ hedged the yen exposure so investors could focus on equity performance without the effect of currency moves. The WisdomTree Japan Hedged Equity Fund became the first-ever-currency hedged ETF.

Before joining WisdomTree, he was head research assistant to Wharton Business School finance professor Jeremy Siegel, helping with the research and revision of “Stocks for the Long Run” and “The Future for Investors.”  

You can stream/download the full conversation, including the podcast extras, on BloombergiTunesOvercast, and Soundcloud. Our earlier podcasts can all be found on iTunesSoundcloudOvercast and Bloomberg.

Next week, we speak with Ray Dalio of Bridgewater Associates.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”

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