Investors want ETFs that strip out FX volatility
The world's biggest money managers are staking a claim in the surging market for stock and bond-linked exchange traded funds (ETFs) that strip out currency risk.
The companies are tapping into growing demand from US retail investors who've sought exposure to international stocks and bonds but want to avoid exchange-rate fluctuations.
Industry giants BlackRock and State Street are rolling out hedged exchange-traded funds at an unprecedented clip after smaller rivals lured the bulk of $41bn (€37bn) of inflows this year. BlackRock started 11 of the funds this month, including ETFs protecting against moves in the Australian dollar and Mexican peso, while State Street opened a euro-focused version in June.
Sitting out the year's most popular strategy isn't an option for fund companies, which are increasingly reliant on exchange-traded products to generate income. The number of currency-hedged ETFs listed in the US has doubled during the past year to 60, with at least 30 more registered with regulators, according to data compiled by Bloomberg.
"It's been fast and furious with issuance," said Kevin Kelly, the New York-based chief investment officer at Recon Capital Partners, which manages more than $300m and has bought funds focused on Germany. "Some of the newer products are going to have a tough time, especially if they're levered, especially if they just cover a broad index that is already out there from another issuer." Clients "are looking for more options to help them manage their currency risks, which is why we added more single countries, regions and small cap," Jane Leung of BlackRock's ETF unit iShares said. (Bloomberg)