Some of this year’s hottest exchange-traded funds are starting to look like a flash in the pan.

When the dollar’s 21 percent, nine-month rally through mid-March was hurting returns for investors in stocks outside the U.S., ETFs that hedge against declines in other currencies made sense. Now, with an index of the dollar little changed in September, investors have directed the least money into such products in almost a year.

While these funds outperform their naked, or unhedged, counterparts when the U.S. currency strengthens, buyers have felt the pinch as the greenback’s rally leveled off and stocks fell. Direxion Investments’ leveraged Japan fund paced declines with a 26 percent slump. James Doyle, a spokesman for New York- based Direxion at JCPR Inc., didn’t have an immediate comment when reached by phone Monday.

“Hedging of the U.S. dollar actually hurt you more than you would have been hurt if you didn’t hedge,” said Gary Stringer, chief investment officer at Stringer Asset Management LLC in Memphis, Tennessee. “Maybe this particular niche won’t be as popular as it was earlier in the year.” 

The company, which manages about $300 million, began lowering its currency hedges during the March-June period and now has none, he said.

Currency-hedged products attracted $794 million of inflows this month, the least since last October, data compiled by Bloomberg show. That’s down from as much as $11.5 billion in March and only 4 percent of money gained by U.S. ETFs in September.

That poses a problem for fund sellers. The likes of BlackRock Inc. and State Street Corp. have created 42 hedged funds since Dec. 31 in an attempt to capture some of the $47.3 billion that’s flowed into these products. 

Fund Flows

The latest funds have garnered less than 2 percent of inflows. And with performance deteriorating, ETF companies are left competing for a shrinking supply of fresh money.

All of the 41 equity ETFs that have a currency hedge and were created more than three months ago lost money this quarter. Japanese funds have spearheaded losses, as the yen appreciated 2.2 percent versus the dollar.