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Currency-Hedged Strategy ETFs Rake In The Cash As Dollar Rallies

The strength of the U.S. dollar led investors to stash money into currency-hedged exchange-traded fund strategies in February, and that trend continues into March.

According to ETF.com, which tracks the ETF industry, these types of ETFs saw net inflows of $34 billion in February, putting total assets under management during the month to a near-record $2.093 trillion.

“Currency-hedged (ETFs are) the story of the year. It’s where all the ETF investors are concentrating their bets and that is absolutely continued into the first part of March,” said Matt Hougan, president of ETF.com

In February, the WisdomTree Europe Hedged Equity Fund (HEDJ ) was the single-biggest recipient of inflows, pulling in almost $2.5 billion and as of end-February, and had more than $12 billion in total assets under management, according to data compiled by ETF.com.

Inflows into that ETF has already beat February’s total, Hougan said, bringing in to $2.67 billion in the first two weeks of March.

Other currency-hedged ETFs also benefitted from investors zeal for these products. The Deutsche X-trackers MSCI EAFE Hedged Equity ETF (DBEF) and the iShares Currency Hedged MSCI EAFE ETF (HEFA) pulled in $1.5 billion and $981 million, respectively, in February and are also seeing more inflows in March, he said.

The European Central Bank’s news stimulus program is hitting the euro, while the dollar is rising on expectations for the Federal Reserve to raise interest rates later this year.

“The euro fall has really been stunning and now you have folks calling for it to not just reach parity but go below parity. That’s the front page of the news. Investors, and I think more than investors, financial advisers, are seizing on that to push into currency-hedged products and they’re delivering real performance. It’s been the easiest alpha-seeking call you can make over the past year and it’s delivered in spades,” Hougan said.

Aside from the currency-hedged ETFs, Hougan said there’s been a big inflow of funds across the fixed-income space, including into high-yield, and that’s continuing into March. In February the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) saw the second-highest amount of inflows, he said.

“On one level it’s counter-intuitive, who would be buying fixed-income at this point? Our opinion is on what’s happening there, is that a secular trend is overwhelming any particular investor’s point of view. While I do think advisers and investors are pulling away from fixed-income, institutional investors, particularly insurance funds, have discovered ETFs in a massive way, and they’re so big that this pile of money is overwhelming any other sentiment indicator,” he said.

The last big 2015 trend for investor interest is buying up of ETFs related to consumer discretionary spending, Hougan said.

“It’s an easy story, too. We’re also seeing flows in to oil ETFs. I think people are thinking that oil prices are down, that’s putting money into consumers’ pockets,” he said.

Debbie Carlson

Posted by Debbie Carlson

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