Foreign stocks bear an additional layer of risk stemming from changes in foreign-exchange rates, making them more volatile than their U.S.-listed counterparts. But currency-hedged international-stock funds allow investors to benefit from global diversification without taking on extra risk. Currency-hedging won't always help performance and could hurt tax efficiency, but it should consistently reduce volatility.
IShares Currency Hedged MSCI EAFE ETF (HEFA) has a few advantages over its competitors. Its diversified portfolio captures a large chunk of the available foreign market capitalization while also hedging currency risk. But similar unhedged portfolios are available for a fraction of the cost, limiting the fund's Morningstar Analyst Rating to Bronze.
Daniel Sotiroff does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.