The falling euro is proving a boon for exchange-traded funds that hedge currency risk.
With the euro slumping to its lowest since May, investors last week directed the most money in two months into the three largest U.S. ETFs that invest in stocks across Europe and protect against currency fluctuations.
Traders are reviving bets on euro weakness as questions about the future of Greece in the common currency gives way to wagers on further divergence between monetary policy in Europe and the U.S. European Central Bank President Mario Draghi last week reiterated a commitment to providing unprecedented stimulus to the euro area through September 2016.
“The Greece uncertainty was more just a pause,” Eric Mustin, vice president of ETF trading solutions at WallachBeth Capital LLC in New York, said Monday. “Guys were going risk-off around that event, but once they’ve returned to put back on their European or developed-market equity exposure, they prefer to use the hedged vehicles.”
The euro was little changed at $1.0833 as of 2:40 p.m. in New York, after falling to $1.0821, the lowest level since May 27.
WisdomTree Investments Inc.’s Europe hedged fund, which has attracted more cash than any other ETF this year, gained the most from renewed euro weakness last week, adding $343 million, data compiled by Bloomberg show.
Together with a Deutsche Bank AG ETF and one from BlackRock Inc.’s iShares unit, the three funds took in $506 million, the most in eight weeks.
That may signal a resurgence in inflows. While investors have channeled $42 billion into currency-hedged funds this year, the additions ebbed to $137 million across 60 products in the week ending July 10, the least since December.
“There will be some permanent place for these products,” Anil Suri, head of portfolio construction and investment analytics in New York at Bank of America Corp.’s Merrill Lynch unit, said Friday. “It looks like the U.S. dollar is appreciating and, in line with that view, it may make sense to hedge out.”