Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Look out: Currency hedging is on the loose in ETF world

Expect more downside risks for the euro: Nomura

That stampeding sound you hear is coming from fund managers scurrying to get into the currency-hedging trade.

In recent weeks firms have brought more than a dozen new offerings in that category to the exchange-traded fund universe. ETFs looking to hedge exposure to currency issues across Europe, South America and Asia have blossomed as investor money pours into the strategy.

As is often the case on Wall Street, the natural worry is whether the rush might come too late. Foreign exchange dynamics present earlier this year have abated somewhat, making the need to protect against currency movements less urgent for the moment.

"There were enormous flows in January, February and March. Those have tailed off a little bit," said Matt Hougan, CEO at, a site that tracks industry trends and provides education for those using the increasingly popular products. "This is sort of a long-term theme that will be with us the next couple of years as people put currency more squarely in focus."

In terms of fund flows, four of the 10 most popular funds for the first half of 2015 involved currency hedging, as shown in the table: