As the Won has strengthened sharply, investors in U.S. exchange-traded funds (ETFs) are experiencing mixed outcomes. Even among products tracking the same index, returns have diverged by more than 8 percentage points depending on whether they are currency-hedged or not. However, experts advise that currency-exposed ETFs are better suited for long-term investing due to factors such as cost burdens.
According to KOSCOM Check Expert+ data released on the 31st, as of the 28th, "TIGER U.S. S&P 500 (H)" recorded a return of 2.41% over the past three months. In contrast, the currency-exposed version, "TIGER U.S. S&P 500," managed only -5.91%. Similarly, "TIGER U.S. NASDAQ 100 (H)," which tracks the NASDAQ-100 index as its benchmark, posted a return of -1.38%, outperforming the currency-exposed "TIGER U.S. NASDAQ 100" (-9.56%).
The reason for such divergent returns lies in how these products, which invest in overseas assets, reflect exchange rate fluctuations. Products with "(H)" in their names are currency-hedged instruments that lock in the exchange rate at a specific point in time to limit exposure to exchange rate risk. Those without "(H)" are currency-exposed products that directly incorporate exchange rate movements into their returns.
The background for the higher short-term returns of currency-hedged products is the recent sharp appreciation of the Won. On the 28th, the won/dollar exchange rate in Seoul's foreign exchange market closed at 1,372.5 won per dollar, down 8.4 won from the previous trading day, marking the end of weekly trading. This represents the lowest level in approximately 13 months.
Park Seung-jin, a senior manager at Hana Securities, explained, "While hedging incurs costs that slightly reduce returns, even accounting for this, exchange rate losses are currently larger."
Experts forecast that the won/dollar exchange rate will continue to decline through the end of this year. Some securities firms have projected a low as 1,300 won. Park Sang-hyun, a researcher at iM Securities, cited several factors for further downward pressure on the won/dollar exchange rate: "Continued strengthening of domestic economic momentum based on strong semiconductor exports; increased dollar selling volume due to large-scale shareholder return policies by Samsung Electronics and SK Hynix; expansion of trade and current account balance surpluses; and strengthening of domestic manufacturing sector momentum." On the 31st, the won/dollar exchange rate in Seoul's foreign exchange market closed at 1,368.6 won per dollar, down 3.9 won from the previous day's weekly closing price, marking its lowest level in over 13 months.
However, investors planning for long-term holdings are advised to utilize currency-exposed products. When U.S. interest rates exceed Korean rates, as is currently the case, bearing hedging costs becomes a burden that accumulates annually and erodes ETF returns over longer holding periods. Due to hedging costs, currency-hedged products tend to have higher total expense ratios than currency-exposed ones. In fact, the total expense ratio of "TIGER U.S. S&P 500 (H)" is 0.0632 percentage points higher than that of its currency-exposed counterpart.
A representative from Mirae Asset Asset Management stated, "Investing in the U.S. S&P 500 serves not only as a means to hold dollar-denominated assets but also provides a buffering effect where rising exchange rates partially offset stock price declines during sharp global market drops, making currency-exposed products suitable as the basic position for long-term investing." He added, "Currency-hedged products are effective as trading tools to partially hedge against exchange rate decline risks when the exchange rate is judged to be at high levels."
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