NEW YORK (Reuters) - U.S. fund investors are in no rush to shore up defenses against the strong dollar.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., August 23, 2018. REUTERS/Brendan McDermid
The greenback’s 6 percent leap over the past six months has flummoxed markets from Turkey to Argentina, whose governments have to repay debt in dollars.
The stronger currency, which makes U.S. exports more expensive to foreign buyers, has also frustrated President Donald Trump, who is trying to reduce U.S. trade deficits.
Yet among the least popular exchange-traded funds (ETFs) this year are “currency hedged” funds, which invest in stocks abroad but strip out the effect of a foreign currency’s performance using derivatives. That makes the funds more resilient in a “King Dollar” world, when the greenback is dominant, which hurts U.S. investors converting foreign stock gains back into dollars.
Some investors are betting that the dollar’s run has gone too far given the risk of seismic U.S. congressional elections in November or the potential for the U.S. Federal Reserve to slow down the pace of interest rate hikes.
“We’re not really hedged right now even though the consensus is for a strong dollar,” said Komson Silapachai, vice president of research and portfolio strategy at Sage Advisory Services Ltd. “We think there’s a bigger chance that the market is underpricing the chance for a weaker dollar.”
U.S.-based currency-hedged funds have logged $10.2 billion in withdrawals this year, while their unhedged counterparts have attracted $30.7 billion, according to FactSet Research Systems Inc. That is a break from past practice, when investors rewarded currency-hedged funds as the dollar gained.
Hedged funds took in $51.9 billion in 2014 and 2015 as the dollar leapt by more than
