ETF Tracking German Stocks With a Euro Hedge Is The New Favorite
By Sofia Horta E Costa
U.S. traders are shunning a traditional exchange-traded fund tracking German shares, pouring money instead into one that protects against euro swings.
The iShares Currency Hedged MSCI Germany ETF received $135 million in May, while the non-hedged version had its first monthly withdrawals of the year. Investors opted to shield their equity returns as the dollar strengthened against the euro amid speculation about a rate hike from the Federal Reserve.
With moves in the currency becoming the main element affecting the DAX Index, hedging has become a key component of investors? strategies. The German ETF with built-in protection climbed in May, while the other one had its worst month of 2015. And analysts are predicting the European Central Bank?s asset-buying program will help push the euro down another 5 percent at least through March of next year.
?For the DAX, you need to make a call on the currency, as well as a call on the stocks,? said Thomas Thygesen, head of cross-asset strategy at SEB AB in Copenhagen. ?U.S. investors not only have to deal with euro weakness, but also dollar strength and Fed-induced volatility. It was a month where the euro was more of a risk than an opportunity.?
Investors poured $1.6 billion in the hedged German ETF this year, bringing its market value to almost $1.8 billion. Even though it?s a lot smaller than the $6.9 billion of the iShares MSCI Germany ETF, its growth has outpaced the unprotected version by eight times in 2015.
The DAX advanced 0.2 percent at 10:28 a.m. in Frankfurt.