Kenneth Lamont: One of the key developments we've noticed in the European ETF space in the past year has been the proliferation of currency hedged products. Already year-to-date we've seen 88 of these distinct products coming to market. Any currency hedged ETF is an ETF which offers foreign exposure, but reduces or mitigates the currency risk associated with that investment.
So for example an investor who is bullish on European large cap equities but is concerned about the potentially damaging movements in the euro GBP conversion rate may buy a product such as LYXOR EURO STOXX 50 GBP hedged ETF. These products will allow them to gain from returns in the equity market, but again protect them from adverse movements in the currency exchange rates.
It's not all good news these products generally cost a little more than their unhedged counterparts. And then something else that investors should consider is that one man's hedger is another man's speculator. And these products can be used to speculate. So it's very important before investing in these products that investors consider the complexity and fully understand the foreign exchange bet they are making.