iShares Currency Hedged MSCI Eurozone ETF of ISHARES TRUST (HEZU) seeks to track the MSCI EMU Index while hedging currency exposure back to the U.S. dollar. This index measures the performance of large- and mid-cap stocks across developed European markets that use the euro, including companies from Germany, France, Netherlands, and other eurozone countries.
How It Works
HEZU uses a passively managed, market-capitalization-weighted approach that mirrors the MSCI EMU Index while employing currency forward contracts to hedge euro exposure back to USD. The fund holds European stocks in proportion to their market value while simultaneously using derivatives to neutralize foreign exchange fluctuations. Rebalancing occurs quarterly to maintain index alignment and monthly for currency hedging positions. This dual approach allows U.S. investors to capture European equity returns without euro currency risk.
Key Features
- Currency hedging eliminates euro-to-dollar exchange rate risk, providing pure European equity exposure for U.S. dollar-based investors
- Covers major eurozone markets including Germany's DAX and France's CAC 40 constituents in single diversified vehicle
- Managed by BlackRock with established hedging infrastructure and deep European market expertise since 2014 inception
Risks
- This ETF can lose value when European stock markets decline, with potential 30-40% drops during regional recessions or financial crises
- Currency hedging costs and imperfect hedge ratios can create tracking error versus the underlying European equity index performance
- Concentrated exposure to eurozone economies makes the fund vulnerable to European political instability, banking crises, or sovereign debt issues
Who Should Own This
Best suited for U.S. investors with 3-5 year time horizons seeking European equity exposure without currency risk as a satellite holding (5-15% of equity allocation). Medium-to-high risk tolerance required due to regional concentration and equity volatility. Ideal for investors who want eurozone market participation but prefer to avoid euro exchange rate fluctuations in their portfolio returns.