Dan Petersen

Dan Petersen has been in the industry since 2003, starting in financial advisor roles before joining Index IQ as his first ETF position in 2012. When New York Life acquired Index IQ in 2015, he grew from a hybrid distribution wholesaler into product management, where he's spent the last eight years. On the side, he just bought a 20-year-old boat, spent four months rehabbing it, and barely got it in the water by Labor Day.

On this episode of Behind the Ticker, Dan walks Brad through HFXI, the New York Life FTSE International Equity Currency Neutral ETF. It's a market-cap-weighted international equity fund with a 50% currency hedge. The full name is indeed a mouthful, and they both had a laugh about it.

The Currency Problem Nobody Wants to Think About

Dan's core argument: when you invest internationally, there's a currency decision embedded in your return whether you think about it or not. Twenty years ago, investors just accepted currency risk for what it was. Then fully-hedged products came out, and a lot of money piled into hedged Japanese equity funds to capitalize on Japan's intentional yen devaluation. The problem was most investors were late to the trade and underperformed unhedged products. That experience was traumatic enough that most advisors now just default to unhedged international exposure and refuse to think about currency at all. When you look at the foreign large blend category, 99% of assets are in unhedged products.

HFXI offers a middle ground: 50% hedged using 30-day forward contracts rebalanced monthly. The logic is that a partial hedge reduces volatility without requiring a directional currency bet. Currency returns are a separate, distinct time series from equity returns. By reducing currency exposure by half, you take out volatility without sacrificing the equity return. On a typical year, currency attribution can add or subtract up to 600 basis points from international equity returns, with extremes as wide as 1,000 basis points in either direction. That's massive. A 50% hedge cuts that range roughly in half.

The Dollar Smile

Dan explained the "dollar smile" phenomenon that drives currency returns. The U.S. dollar strengthens in two very different scenarios: risk-off environments where there's a flight to quality into dollars, and high-growth scenarios where U.S.-centric growth attracts capital (like the past several years). The dollar weakens in the middle: stable growth with unexpected inflation, where foreign currencies tend to strengthen. The result is that predicting currency direction requires getting the macro regime right, which is notoriously difficult. A 50% hedge is designed for investors who don't want to make that call.

FTSE vs. MSCI: Does It Matter?

HFXI tracks a FTSE index, not MSCI. Dan noted some differences: FTSE considers South Korea and Poland as developed markets while MSCI does not. Vanguard's international product includes Canada in its FTSE version, while MSCI EAFE does not. Despite these differences, the correlation between different developed market international indices runs above 99% over most periods. The choice between FTSE and MSCI matters less than the currency decision, which Dan argues is where the real performance attribution happens.

International Valuations: Still Cheap, Still Frustrating

Brad and Dan got into the international equity argument that everyone in the industry has been having for years. International indices always trade at a discount to U.S. equities. That's not new. But the discount has widened to what Dan wrote about in a research paper as being multiple standard deviations from the mean. U.S. P/E ratios in the low 20s versus international in the mid-teens, and the spread keeps growing. Dan acknowledged the fatigue factor: "It gets tiring because that's existed forever."

But he held firm that the valuation gap, combined with the fund's currency hedge reducing volatility, creates a compelling package. HFXI has held a consistent five-star Morningstar rating. He positions it as a core international holding that can pair with active strategies, where the 50% currency hedge lowers the overall portfolio volatility without requiring any directional currency conviction. For advisors running model portfolios, it's a way to get international exposure without adding the currency risk that has burned so many over the past decade.

Key Takeaways

• HFXI is a market-cap-weighted international equity ETF with a 50% currency hedge using 30-day forward contracts, designed to reduce volatility without requiring a directional currency bet.
• Currency attribution can swing international equity returns by 600-1,000 basis points annually. A 50% hedge cuts that range roughly in half.
• The fund has maintained a five-star Morningstar rating. 99% of assets in the foreign large blend category are unhedged; HFXI offers a middle ground.
• FTSE and MSCI differ on country classifications (South Korea, Poland, Canada), but correlations between developed market indices run above 99%.
• Dan Petersen joined Index IQ in 2012 and has been at New York Life since their 2015 acquisition. The "dollar smile" phenomenon makes currency direction notoriously hard to predict.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.