A Guide to Switching Between SPDR Share Classes
Hedged share classes can help investors address FX fluctuations. Given the significant tightening cycle we have seen from central banks around the world, this has created heightened currency volatility and uncertainty. This increases the importance of being able to switch between hedged and unhedged share classes with ease, as investors may want to look at managing their currency risk when investing in a portfolio outside of their base currency.
Investors currently invested in non-hedged ETFs may be concerned about the practicalities and associated costs that are associated with transitioning to a hedged ETF share class variant. However, investors wishing to move between ETF share classes now have the ability to leverage switch trading strategies to help manage the operational and cost considerations.
Why Consider Switch Trading?
ETFs provide investors efficient access to a broad set of benchmarks across asset classes with transactional costs at or around the underlying constituent levels, and the unique structure of ETFs can also deliver investors with an efficient platform to re-allocate strategies between ETF variants, for example from unhedged to hedged share classes.
When considering switching from an unhedged exposure to a hedged equivalent, investors can leverage the similarities in constituent make-up between the unhedged index and the hedged variant, and transact based on an “all-in switch price” rather than trading the two legs in isolation. Using an all-in switch price may create pricing efficiency as Authorised Participants are able to manage both legs of the transaction, leveraging the constituent overlap and their unique ability to access the products’ primary markets to help minimise execution costs for investors. Additionally, SPDR ETFs do not currently charge Authorised Participants when facilitating switches between share classes in the primary market. In short, the Authorised Participant would be able to minimise costs by monetising the inventory from the sell leg to the buy leg, thus keeping transactional costs at a minimum.
In addition, investors can also now benefit from recent developments seen across third-party Request for Quote (“RFQ”) platforms that have developed a “switch” quote type mechanism to stand alongside the traditional NAV and risk principal price trading benchmarks, which help to automate the switch order flow process. This is a positive development for investors, and provides an additional trading option within their execution toolkit.
Let’s take a look at an example of a switch from our SPDR S&P 500 UCITS ETF into our SPDR S&P 500 EUR Hedged UCITS ETF.
The indicative all-in switch price shown provides price efficiency compared with the primary market round trip costs payable by Authorised Participants when transacting in the primary market.
Potential Implementation
SPDR ETFs offer investors cost-effective, flexible, transparent tools for managing currency exposures across equity and fixed income allocations. Built through partnerships with investors and index providers and fueled by our institutional expertise, our currency-hedged share classes allow investors to target their exposures.
For further information, please reach out to the EMEA SPDR Capital Markets team at