Exchange traded fund investors have been dumping exposure to U.S. equities in favor of overseas markets this year.
According to Lipper data, the SPDR S&P 500 ETF (NYSEArca: SPY) experienced the largest amount of redemptions in 2015 of any one portfolio, bleeding $46.5 billion in the second quarter, reports Stephanie Yang for CNBC.
Meanwhile, investors have been funneling $50.5 billion into developed international market funds, notably those that track European markets.
Year-to-date, SPY has experienced $42.6 billion in net outflows, according to ETF.com. In contrast, the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) and Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF) are the two most popular ETFs of the year, attracting about $15.4 billion and $12.0 billion in net inflows.
The currency-hedged ETF strategies have been up-and-coming plays to garner international market exposure while mitigating risks associated with depreciating overseas currencies or a stronger U.S. dollar.
The recent market weakness has also triggered an exodus from U.S. markets. Over the past week, SPY lost $1.1 billion, PowerShares QQQ (NasdaqGM: QQQ) saw $1.2 billion in outflows and iShares Russell 2000 ETF (NYSEArca: IWM) saaw $737.1 million in redemptions.
Meanwhile, the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ) added $2.9 million, iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) saw $50.2 million in inflows and HEDJ saw $12.9 million in inflows over the past week.
“From a growth standpoint, you’re coming from a very low base in Europe,” Neil Azous, founder of the advisory firm Rareview Macro, told CNBC. “And as the repair process continues, the ability for that growth to accelerate from a low base is very much in motion right now.”
Additionally, for Japan exposure, the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) experienced $71.3 million in net inflows, iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ) added $38.9 million and Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) saw $8.5 million in inflows over the past week.
Azous also argues that investors are shifting out of overweight U.S. positions ahead of a Federal Reserve interest rate hike, which would dampen the outlook on U.S. equities. In contrast, many overseas markets are still engaging in loose monetary policies and implementing quantitative easing policies.
For more information on the global markets, visit our global ETFs category.
Max Chen contributed to this article.