IShares Currency Hedged MSCI EAFE ETF HEFA is a market-cap-weighted portfolio of large- and mid-cap stocks in the developed international market. While its fee could be lower, it effectively minimizes volatility associated with foreign-exchange rates.
The fund tracks the MSCI EAFE 100% Hedged to USD Index. It targets large- and mid-cap stocks from 21 overseas developed markets while hedging currency risk. The underlying portfolio weights its holdings by market capitalization. Market-cap weighting is an efficient way to size holdings because it harnesses the market's consensus opinion of each stock's relative value. Stocks that grow in size take up a larger share of the portfolio, while shrinking companies that may be struggling will have less importance.
Diversification is a strength of the fund. The underlying portfolio holds about 800 names, with its 10 largest positions accounting for only 15% of assets. It’s not as broad as the MSCI EAFE Investable Market Index, which holds about 3,000 stocks and includes the small-cap segment, but it still covers a lot of ground. Some of this fund’s largest holdings are European multinationals like Nestle, Shell, and LVMH Moet Hennessy Louis Vuitton.
Emerging-markets and small-cap stocks are small parts of the opportunity set that this fund misses. While together they usually constitute just 10% of competitor portfolios in the foreign large blend Morningstar Category, this fund is not positioned to reap the rewards should they perform well. Though, middling performance in those segments gave this fund a leg up on competitors in recent years. 
Hedging back to the U.S. dollar also benefitted this portfolio in recent years. A strong U.S. dollar relative to the foreign currencies represented in this portfolio amplifies fund returns while hedging activities can reduce volatility compared to an equivalent unhedged strategy. Indeed, the U.S. dollar’s recent strength helped the fund outpace both the unhedged MSCI EAFE Index and the foreign large blend category average by more than 4 percentage points annually, also with lower volatility.

Analyst Rating

Foreign stocks without currency risk.

Analyst

Zachary Evens

iShares MSCI EAFE ETF

The fund captures most of the overseas developed market while attempting to eliminate the volatility associated with foreign exchange rates. It earns an Above Average Process Pillar rating.

Above Average

Process

BlackRock's industry-leading technology, global footprint, and extensive supporting cast earn an Above Average People Pillar rating. The team employs BlackRock's Aladdin platform to fulfill much of its portfolio management tasks, and global trading desks allow traders to conduct foreign transactions in a cost-effective way.
The iShares index equity team has endured some internal turnover at the top over the past few years. But index-tracking performance should remain tight, thanks to heavily automated processes, a large team of seasoned professionals, and several long-tenured managers who remain at the helm. Amy Whitelaw left the team in February 2023. Paul Whitehead replaced Alan Mason as a manager in January 2022, when Mason left to focus on the firm's customized institutional indexing capabilities. The broader index equity group, co-headed by Jennifer Hsui and Paul Whitehead, will continue to oversee iShares equity ETFs.
These managers interact with a wider team of traders and managers around the globe to execute the fund's day-to-day operations. The larger number of managers also limits the impact of personnel turnover when it does occur.

People

BlackRock offers compelling options across asset classes and vehicles. It earns an Above Average rating for Parent. 
The firm’s approximately USD 8 trillion in assets under management, as of Sept. 30, 2022, gives it unparalleled scale and influence. It is a market-leading index fund provider globally, and its iShares exchange-traded fund franchise offers a low-cost lineup of core funds that investors can use to build a well-diversified portfolio for dirt cheap. The firm can be more adventurous in its ETF launches than some peers, so not everything it launches is appropriate for the masses. As a result, it is likely to have more ETF closures than peers that stick to the basic building blocks.  
The firm’s active fixed-income and multi-asset efforts also stand out as some of the best in the industry. Those benefit from BlackRock’s commitment to building a first-class risk management system via its Aladdin analytics software. The software is also available for sale to other firms and has proved to be a popular option for competitors, a testament to its usefulness. 
More recently, the firm has shifted its focus to ESG offerings and incorporating ESG across its investment lineup, leading to a political backlash in the United States.
BlackRock isn’t the best at everything it tries to do, but retail investors, financial advisors, and large institutions could all build robust portfolios using BlackRock’s products.

Parent

iShares Currency Hedged MSCI EAFE ETF

HEFA tracks a market cap-weighted, USD-hedged index of large- and mid-cap stocks from developed countries outside the US and Canada.

Investing in international stocks exposes investors to currency risk, which can significantly affect returns. The iShares Currency Hedged MSCI EAFE ETF offers exposure to international equity markets, while mitigating currency risk. HEFA uses currency forward contracts to hedge against currency risk, providing investors with a unique selling point.

HEFA: Hedging International Currency Risk Away

Allocating to international equities may offer notable returns and diversification benefits in a challenging economic environment. The iShares Currency Hedged MSCI EAFE ETF (HEFA) is a compelling instrument for exposure to global equities with a currency hedge. Factors supporting the case for global investments include sustained US outperformance, premium earnings growth in foreign markets, a high USD, and attractive valuations.

HEFA: Currency Neutral + Allocation To Regional Opportunities Outside Of The US

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Both the EFA ETF and HEFA ETF invest based on the MSCI EAFE Index, giving investors the choice of being hedged against the currency risk or not. This article updates my review from last February in terms of ETF holdings, distributions, and most importantly, returns. For investors who do not believe the USD will decline precipitously against other major currencies over a long period, I would give EFA a Sell rating and HEFA a Buy.

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The latest minutes from the July Fed meeting revealed the possibility of longer-than-expected higher interest rates, pushing the U.S. dollar higher.

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iShares Core MSCI Europe ETF

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The iShares MSCI EAFE ETF invests based on the MSCI EAFE Index composed of Large-Cap and Mid-Cap Developed market equities, excluding the U.S. and Canada. The iShares Currency Hedged MSCI EAFE ETF follows the same index but tries to hedge away all the currency risk involved by owning stocks that trade in different currencies.

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This has been a terrible year for global markets. Still, some ETFs breezed past the S&P 500.

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The strength in the greenback would compel investors to recycle their portfolios into the currency-hedged ETFs.

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The U.S. dollar against a basket of currencies has been rising lately, soaring to a 20-year high. Against this backdrop, we highlighted ETFs that should benefit from a strong dollar and those that will lose.

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ETFs to Make the Most of Dollar Surge

While U.S. equity markets are down in 2022, advisors have not experienced significant benefits of diversification through international equity markets, particularly if they ignored the small suite of currency-hedged products available. Indeed, the iShares MSCI EAFE ETF (EFA) was down 12% year-to-date through June 8, with the Japan segment of the index down 15%.

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Developed-market (DM) household savings recorded a significant gain last year, with an increase equivalent to 10% of combined gross domestic product (GDP). This build-up is likely to bolster consumption as restrictions on economic and social activity are removed and pent-up demand unlocked.

News for iShares Currency Hedged MSCI EAFE ETF ETF (HEFA)