FX: Wild ride for currency-hedged ETFs to continue apace
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Foreign Exchange

FX: Wild ride for currency-hedged ETFs to continue apace

The rollercoaster ride for currency-hedged exchange-traded funds (ETFs) shows no sign of slowing, with the up of 2015 and subsequent down of last year followed by increased investor interest in the early months of 2017.

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An upturn in sales in the immediate aftermath of the EU referendum could not mask the disappointing performance of currency-hedged ETFs in 2016.

Bloomberg data show almost €400 million of outflows from European domiciled currency-hedged equity ETFs last year, and even heightened demand for hedged fixed income and commodity products failed to prevent a near 13% fall in overall European domiciled currency-hedged ETF inflows.

However, 2017 has seen a sizeable return in interest from investors, with overall inflows up by almost €7.2 billion for the year to the end of April – more than 40% higher than the total for the whole of 2016.


Nizam Hamid,

According to Nizam Hamid, head of ETF strategy at WisdomTree in Europe, currency volatility has reminded investors of the risks of holding unhedged exposures.

Managing currency risk has returned to the fore, especially when investing in markets such as Japan, he says, adding: “The key for investors is to understand that when buying equities, typically they only want to access the local equity return without the complications and risks of currency movements.”

The strengthening of the euro to the US dollar has raised demand for euro, sterling and Swiss franc hedged exposure by European-denominated international investors, observes Eric Wiegand, ETF strategist at Deutsche Asset Management.

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