Currency hedging takes on new importance for global stock funds

Sun Mar 22, 2015 1:15am EDT
 
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By David Randall

NEW YORK (Reuters) - As the dollar surged in the last 12 months, David Marcus, head of the Evermore Global Value fund, steadily increased his stake in Europe. He now has 60 percent of his portfolio invested in companies in the euro zone, the largest stake among any global fund tracked by Lipper.

The gains in those stocks wouldn't matter if the fund wasn't actively hedging against euro weakness, which it is, helping the fund rise 8.8 percent so far in 2015, putting it among the top-performing global stock funds this year.

"We're stockpickers, and by hedging currencies we can be pure stockpickers without the currency risk," said Marcus.

Concerns over currency have prompted a surge of assets to hedged equity funds, with investors moving $12.1 billion to exchange-traded funds that hedge currencies over the year to date, according to Lipper data. One such fund, the WisdomTree Hedged European Equity fund, is up 18.9 percent for the year so far.

Demand for a way to hedge currency exposure while investing in Europe helped the WisdomTree Europe Hedged Equity Fund bring in $5.3 billion in new assets over the first two months of the year, the most of any equity fund, according to Lipper.

The fund's top holdings include Anheuser-Busch InBev NV, Telefonica SA, and Daimler AG.

Following behind it was the Deutsche X-trackers MSCI EAFE Hedged Equity, with $2.7 billion in new assets. The fund tracks an index of developed-market equities outside of the United States and Canada, and has its largest positions in Nestle SA, Novartis AG, and Roche Holding AG.

The dollar's rally looks to be eating into the returns of actively managed funds, fund analysts say. While major stock indexes in Japan, Germany, and France are up 11 percent or more in local currency for the year to date, the average global fund is up just 2.6 percent in dollar terms over the same time, according to Lipper data.   Continued...

 
U.S. dollars are counted out by a banker at a bank in Westminster, Colorado November 3, 2009.  REUTERS/Rick Wilking