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ETF posts strong inflows – Equity funds with exchange rate hedging back into fashion News

Monday, August 28th, 2017 | Economy

Therefore, investors are once again increasingly attracted to listed ETFs with a built-in parachute.
After extracting 9.1 billion dollars from this asset class last year between January and July, they pumped $ 17 billion in 2017. "This trend will continue in the coming months," says Simone Rosti, head of ETF's sales department at UBS. A total of 127 billion dollars are invested in so-called hedged ETFs. Compared to the 3.3 trillion dollar total market of stock exchange listed shares, however, the proportion of these relatively new products is still very low. There had been a first boom in funds with exchange rate hedges already in 2015.
ETFs are equity funds that map an index such as the SMI. This means that the fund always buys or sells the shares listed in the index depending on the weighting. As a result, the fees are significantly lower than in active funds, where managers decide on each value individually.
In order to hedge against fluctuations in exchange rates, futures contracts are usually purchased in the currency of the respective country. These futures are then converted into new securities after their expiration.
Dollars, pounds and euros are the most worried
Jeremy Schwartz, Chief Analyst of the asset manager Wisdom Tree, advises US investors in particular to hedge against the appreciation of the dollar. Since the beginning of the year, the Dollar Index, which reflects the price of major currencies, has lost about 10 percent. Börsians assume that it has bottomed out because the US bank has already begun with rate hikes and is targeting the removal of its billion-strong securities stocks, while the other major banks are still a long way off.
ETFs with hedging especially against dollar fluctuations are again strongly in demand. Between January and July, investors bought such financial products for $ 5.9 billion. In the previous year, it was only $ 5.3 billion. So far, US investors have run well without additional protection. Thanks to the weakness of the "greenback", the MSCI Europe index has risen by 16 percent since the turn of the year. In Euro, the increase amounted to just 5.5 percent.
However, an increasing number of investors are also keen to oppose a devaluation of the euro, which has grown by around 14 percent in recent months. Since the beginning of the year, $ 1.3 billion has been invested in ETFs that promise this. In uncertain times, demand is jumping in leaps and bounds: in April, for fear of a win, the euro critic, Marine Le Pen, in the French presidential election, traded 638 million dollars in euro-hedged ETFs. The month before it was just six million dollars.
Costly protective screen
The Brexit shock is also still in the bones of investors: After the surprising anti-EU vote of the British in the summer of 2016, the pound sterling fell by more than 20 percent and was as cheap as in about 30 years. ETFs with hedging against price hikes from the pound are currently the best-selling product, reports ETF investment manager Eric Wiegand from the asset manager Deutsche Asset Management.
However, the protective umbrella makes these equity funds expensive. Every year, usually one to two percent of the deposit is due. Without additional protection the fees are a fraction of this. Vincent Deluard of the broker's house INTL FCStone also considers the hedging superfluous. His argument: In the indices on which the ETFs are based, international large-scale conglomerates, which already hedged themselves against fluctuations in exchange rates, were usually found. They do this by shifting production to other countries or by currency transac- tions. "Double hedging brings nothing but extra fees and commissions," says Deluard.


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