US investors shun currency-hedged ETFs despite outsized returns


Currency-hedged exchange-traded funds have not been categorically supported in the United States, despite having recorded significant returns over the past year.

All of the largest currency hedged ETFs in the United States, as measured by the DXY index, comfortably outperform their unhedged equivalent ETFs, supported by a 6.7% rise in the dollar against baskets of six other developed markets. I did.

According to Bloomberg data, the collective assets of US-listed currency hedge ETFs have neutralized foreign currency movements against the dollar and provided exposure to foreign assets, but ended at just $ 16.9 billion last year.

According to ETFGI statistics, the US ETF industry as a whole has more than tripled in size, but this aggregate is almost three-quarters down from its 2015 end-of-year high of $ 61.3 billion.

In the United States, currency hedging ETFs exploded in popularity in 2014 and 2015, with the DXY index rising 23%, a significant rise in developed currencies, and lower returns for unhedged US investors.

The rise in greenbacks was particularly sharp against the Japanese yen, which plunged after then-Prime Minister Shinzo Abe’s government pursued aggressive policies for quantitative easing.

“After Prime Minister Abe was elected in Japan, currency hedging began. Abe [latter-day US Federal Reserve] Eric Baltunas, a senior ETF analyst at Bloomberg Intelligence, said Wisdom Tree’s Japan Hedge Equity Fund.DXJ) Major beneficiaries.

“Then currency hedging began in Europe. They were outperforming by 20-30. [percentage] “Point,” he added.

“Wisdom Tree has skyrocketed the league table. All asset managers holding international equity ETFs have launched alternatives to currency hedging to give investors choice,” said CFRA Research’s ETFs and Todd Rosen Bruce, Head of Investment Trust Research, said.

“They have been positioned as core international equity substitutes to mitigate the risk of currency fluctuations, not to mention the potential benefits of currency fluctuations.”

The decline in format was about as rapid, but as the dollar index fell from a high of 103.3 in December 2016 to 89.4 in early January 2021, dollar-based investors used unhedged vehicles. It meant that it was better to access Europe and Japanese stocks.

But last year, the greenback recovered again, the DXY index rose 6.7%, and hedged ETFs shined again.

Index-level line graph showing the US dollar index (DXY)

iShares Currency Hedge MSCIE AFE ETF (HEFA) For example, the largest currency hedge fund was $ 3.4 billion, returning 19.4%. This outperforms the iShares MSCI EAFE ETF’s 11.2% profit (EFA), Its unhedged sister products.

Three hedged Eurozone equity products, Xtrackers’ MSCI Europe Hedge Equity ETF (DBEU), Wisdom Tree’s European Hedge Equity Fund (HEDJ) And iShares Currency Hedge MSCI Eurozone (HEZU) All made 23-24% revenue, but unhedged peers iShares MSCI Eurozone ETF (EZU) And Vanguard European Stock Index Fund ETF (VGK), At 13.6% and 16.4%, respectively.

However, despite these successes, the 26.9% rise in assets in the sector last year lags behind the asset growth seen across US-listed ETFs, indicating that inflows are very limited. I was suggesting.

“About 70-80 percent of the remaining money. So [currency-hedging] I started working again and no one cares, “Bartunas said.

“Maybe there are investors who use them, not the mass market. They are no longer hedging currencies. [The ETFs] I still have more assets than before Abe [in 2012]However [it’s a case of] From rags to wealth, barely above rags, “he added.

Rosen Bruce believed that investors were “burned” in recent years due to inadequate representation of currency-hedged funds.

“They are unlikely to come back to chew the apple again. They touched something that was too hot, got burned and are now hesitant to do it again.”

In addition, Rosen Bruce said many of the currency hedge funds launched at the height of the boom have since disappeared due to lack of demand.

Rosen Bruce claimed that even Wisdom Tree, the manager who propelled the original boom, made great strides.

“”[WisdomTree] He was a big supporter of currency hedging. That was where they invested their marketing money, “he said, but New York-based publishers have since diversified into areas such as thematic ETFs, cryptocurrencies, leverage and inverse products.

“I don’t think investor education on the benefits of currency hedging is so widespread,” Rosenbluth added.

Can the strategy still be revived?

“Is there a compelling debate to buy?” Said Andrew Jamison, Global Head of ETF Products at Citi. [say] People in currency-hedged Japanese index products will do so, “but compared to the mid-2010s, ETF investors are now” contented with choice. “

“We have battery technology, clean energy, online gambling, meme stocks, crypto ETFs. That’s what captures our imagination. [of retail investors]..that’s why [currency-hedged] The product is not the giant of the past. “

Balchunas said it may be difficult to gain widespread acceptance after investment strategies are no longer endorsed.

“If something goes wrong, people move out of place and then start working again, can we get the investors back? That’s not the case we found in currency hedging.”

Rosen Bruce also had little chance of a major comeback. “Often there is a home bias, a preference for a simple route, and a lack of confidence in predicting currency movements,” said a US retail investor.

“They are too comfortable with the demons they know, rather than learning more about the demons they don’t know.”

“We will need to see long-term outperformances” for a comeback to happen, he said. c728 4481 8841 f06299f8d832

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US investors shun currency-hedged ETFs despite outsized returns Source link US investors shun currency-hedged ETFs despite outsized returns

The post US investors shun currency-hedged ETFs despite outsized returns appeared first on California News Times.

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