Currency-hedged ETFs in vogue as investors clamor for more

Sun Feb 8, 2015 1:32pm EST
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By Gertrude Chavez-Dreyfuss and Ashley Lau

NEW YORK (Reuters) - U.S. investors spooked by wild swings in the foreign exchange market are piling into exchange-traded funds that strip out the local currency on their international equity portfolios, making them one of the most sought-after financial products in 2015.

With the dollar having rallied more than 19 percent since the beginning of 2014, investors are seeing gains in overseas stock markets eaten up by losses against the greenback.

"People are voting with their feet," said Luciano Siracusano, chief investment strategist for WisdomTree Investments in New York. "They're putting billions of dollars into these funds, and what they're saying is, 'We don't want to be 100 percent unhedged.'"

Some say there aren't enough of these products for investors looking for international exposure. These ETFs have about $31.5 billion in assets, up nearly five-fold from 2011. But assets in international equity ETFs exceed $275 billion, according to WisdomTree.

"There are 40 countries with stock markets deep enough to have a currency-hedged product," said David Kotok, chairman and chief investment officer of Cumberland Advisors in Sarasota, Florida, which oversees $2 billion, and whose firm's equity investments are solely through ETFs.

"If you look at the ETF offerings, you have hundreds available to craft a U.S.-centric portfolio. But how many do you have in the euro zone? You have maybe a dozen ETFs for China. You have the world's second largest economy and you only have a dozen?"

WisdomTree, with ETF assets of about $44 billion, is the leader in the currency-hedged space with 80 percent of the market. The other two major players are Deutsche Bank, with $5.2 billion in currency-hedged assets, and BlackRock Inc., overseeing about $1 billion in hedged ETFs.

All three are planning to expand their currency-hedged offerings, officials at the firms said.   Continued...

U.S. dollar bank notes are seen in a bank in Budapest August 8, 2011. REUTERS/Bernadett Szabo