Currency ETFs Struggle to Keep Pace With Industry Growth

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]