International Investing: Currency Hedging Performance
IDO has had a really good run. Its historical returns are not indicative of future results, all that good disclosures, but you have to tip your hat in terms of how they've performed in their history here over the last three years. They've really done quite well relative to the other two, but more importantly, relative to the benchmark.
They've done that through some pretty aggressive tilts, so that introduces tracking error in that concept. One thing I would note that I should have noted in exposure strategy is LBHI does hedge out currency risk. That was a benefit to it in years past as the dollar was stronger than a lot of your foreign currencies, but this year it's been a hindrance to performance. That is a big deal in international investing. If you're going to hedge out currency risk, it can be a big driver of your overall return perspective.
I tend to think that if you're investing internationally, part of the diversification is getting exposure to those currencies, so I just wanted to throw that in there. It does show up in that return profile, that currency hedge hedging out the currency of the portfolio. But I think just on a look backward basis, it's pretty obvious IDO is the winner right now.
On a look forward basis, I do think they've demonstrated the ability to navigate the markets. They've got a little bit more of a growth tilt. Long-term earnings of the underlying companies currently held in that portfolio is 3x that of LVHI and Y. So it's got that more growth tilt, which I think kind of fits the dynamics of today's markets. So just in general, I like that performance risk and then yield.
They're going to get you more income. It's going to be a little bit tax different because they're generating off option incomes. The other two are going to get you a nice solid 4% qualified dividend income, so you really can't go wrong there either. But just IDVO is my winner kind of across the board.
