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How to hedge currency risk

When it pays -- and when it doesn't -- to buy the hedged version of foreign ETF

Sometimes the best lessons are painful ones. For instance, how many investors knew when they bought the iShares MSCI Japan exchange-traded fund on Sept. 26, 2012, they were really making two bets -- one on Japan's stock market and another on the yen?

If they didn't then, they should now. Since that day of Japanese Prime Minister Shinzo Abe's election, the iShares ETF has gained only 26.8%, while another that hedges out its currency exposure -- the WisdomTree Japan Hedged Equity ETF -- has gained 58.2%.

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