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Investors hedge US equity positions

European investors have been responding to this year’s dollar weakness by hedging their investments in US equities, according to Morningstar data.


PA Europe

Currency-hedged share classes of US equity funds saw net inflows of €2bn in the first seven months of this year, while their non-hedged counterparts suffered net outflows of €9.45bn over the same period.

The reason for this sudden occurrence of a hedging habit looks obvious: the 12% appreciation of the euro versus the dollar this year. And investors seem to think the euro has further gains to make, as the common currency passed the $1.20 threshold this week.

“We have increased our dollar hedge to 30% of our total equity exposure,” says Frank Reisbol, managing director at Banque Carnegie, which caters primarily Swedish clients.

The asset class European investors are traditionally keen to hedge is Japanese equities. But US equities seem to now have taken over this role, at least temporarily. While Japanese equities have seen an uptick in inflows this year, all of this net new money has flowed into unhedged share classes. Currency-hedged funds, by contrast, have seen minor net outflows on aggregate.