As the foreign exchange markets experience wild swings, investors have thrown billions into currency-hedged exchange traded fund strategies that track international markets and help shield against currency risks.
For instance, the two most popular ETFs of the year are those that track international markets and hedge against depreciating foreign currencies, including the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ), which has attracted $15.6 billion in net inflows, and the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF), which has experienced $12.9 billion in inflows, year-to-date, according to ETF.com. [Why Consider Currency Hedged ETFs]
According to ETFGI, global currency-hedged ETFs have seen assets surge 83% to $118.3 billion in the year ended July, with WisdomTree attracting the lion’s share of assets at $41.6 billion, compared to $26.0 billion for iShares and $22.5 billion for Deutsche’s db x-trackers, reports David Ricketts for the Financial Times.
Currency-hedged ETF growth is predominately coming out of the U.S. where assets have jumped 174% in the year ended July from $26.9 billion at the end of last year.
The recent overseas currency swings have fueled interest in currency-hedged options as a way to capture international market moves without the fear of weaker currencies weighing on U.S. dollar-denominated returns. [An International ETF That Helps Neutralize Currency Risks]
“Recent talk of currency wars based on the devaluation of key currencies has reminded investors of the need to manage currency risk,” Nizam Hamid, head of sales at WisdomTree Europe, told the Financial Times. “Having that built into a transparent and liquid ETF is a useful innovation.”
For instance, Deutsche Asset & Wealth Management calculated that in the 12 month period ended March 2015, U.S. dollar-based investors of the euro would have experienced a 22% decline as the EUR depreciated against the USD.