Investors hedge against euro falls

Investors hedge against euro falls

US investors spooked by the caving euro are getting their hedges on the currency.

A record $203m (€178m) was added to the iShares Currency Hedged MSCI Eurozone ETF earlier this week, a fund that outperforms when the single currency weakens. The same day, four massive block trades, which appear to be sells, hit the tape for the Vanguard FTSE Europe ETF.

The fund, known as VGK, also tracks European equities but does not hedge against currency risk.

And a day earlier, investors pulled $308m from its similarly unhedged cousin, the iShares MSCI Eurozone ETF.

It shows that investors in exchange-traded funds are growing in their conviction that the dollar rally has legs — curbing European stock returns for US investors.

“If I had to guess, given the euro weakness and the footprint of the block trades, it looks like someone is moving money out of VGK and into HEZU,” said Josh Lukeman, the head of ETF market making for the Americas at Credit Suisse Group.

The euro dipped 0.2% in New York trade yesterday at one stage, reaching the weakest in almost 14 months on its fifth straight decline.

The HEZU holds shares in eurozone companies alongside swaps that are designed to minimise the impact of the common currency’s moves on the dollar.

“This looks like one trade and a logical one,” said Eric Balchunas, senior ETF analyst for Bloomberg Intelligence.

With a key interest-rate spread between bunds and treasuries bouncing along near record lows, the euro may be vulnerable to further declines.

Bloomberg

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