FX Hedges
ETF providers say flows into hedged products often increase just after a big swing in a currency or when market positioning shows a preponderance of investors betting a currency will move in one direction.
For example, the euro has gained more than 12 percent so far this year and is the best performing G10 currency.
Flows into currency-hedged ETFs tracking European equities in 2017 have far outpaced last year as brokers and investors have warned in recent weeks that the euro’s rise could start to threaten the bright outlook for profits of European companies.
In the first seven months of this year investors poured $1.3 billion into these products, compared with $9.2 billion of outflows in the same period last year.
"We've started to see many clients moving to euro-hedged products. We see this trend continuing in the next few months," said UBS’s Rosti.
ETFs hedged to the single currency saw a dramatic increase in inflows in April as concerns around the French election faded. They drew in $638 million that month after managing just $6 million in March.
Similarly, since the pound's dramatic slide on the day after Britain's Brexit vote in June 2016, the benchmark UK stock index has hit record highs as the British-based companies with large global footprints benefited from favorable currency translation boosting earnings.
Sterling fell to its lowest against the euro in eight years this week, barring a brief flash crash in October 2016 and analysts say investors are reaching for hedged ETFs to protect against a possible rebound in the pound.
Deutsche Asset Management ETF strategist Eric Wiegand said ETFs hedged against sterling are their best-selling product so far this year.