Currency ETFs Struggle to Keep Pace With Industry Growth
May 7th, 2014 at 9:00am by Tom Lydon
Although not at the breakneck pace seen in 2012 and 2013, inflows to exchange traded products are continuing this year with the year-to-date total as of the end of April resting at close to $30 billion.
That growth has not permeated currency ETFs, the smallest corner of the ETF universe even though these funds are linked to the largest financial market. Investors have pulled $1.1 billion from currency this year, or 23% of total assets, reports Cordell Eddings for Bloomberg.
A significant percentage of currency ETF assets are concentrated to one fund – the $663.1 million PowerShares DB US Dollar Index Bullish Fund (NYSEArca: UUP). Even some ETFs tracking strong currencies have seen outflows this year.
For example, the $185.6 million CurrencyShares Euro Currency Trust (NYSEArca: FXE) has lost almost $81 million despite a modest rise for the common currency. The WisdomTree Indian Rupee Strategy Fund (NYSEArca: ICN) is lighter by $4 million despite a 6.6% year-to-date rise. [EM Currency Rally Fuels These ETFs]
Perhaps in a sign that some investors are betting on a weaker yen, the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) has lost $75.5 million in assets despite a 2.4% 2014 gain.
“The $3.5 billion held by currency ETFs is the smallest for any class. While assets have more than doubled since 2007, that’s about half the 245 percent growth rate of the $1.8 trillion U.S. ETF market since the financial crisis erupted in 2007,” according to Bloomberg.
The CurrencyShares Australian Dollar Trust (NYSEArca: FXA) is up 4.1% this year, but investors concerned that the Reserve Bank of Australia will continue lowering interest rates have yanked almost $63 million from the ETF. [Aussie Rallies on Economic Shift]
Not all currency-related ETFs have floundered this year, but the ones that have impressed are not pure currency funds. Rather, currency hedged ETFs, which hold equity and currency positions, continue to be popular with investors. [Don't Forget These Currency Hedged ETFs]
The WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) has 2014 inflows of $568.2 million and recently became a $1 billion ETF while the db X-trackers MSCI EAFE Hedged Equity Fund (NYSEArca: DBEF) has pulled in nearly $270 million this year.
Inflows to HEDJ and DBEF could be a sign investors’ appetite for currency hedged ETFs extends beyond yen-related fare such as the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and the db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP), two of 2013’s top asset-gathering ETFs.
CurrencyShares Euro Currency Trust
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of HEDJ.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.