Sterling-hedged ETF outperformance fails to spark inflows


Post-Brexit sterling depreciation that has prompted outperformance in pound-hedged UK exposed ETFs has failed to spark inflows into the category, figures from IHS Markit show.

Currency hedged products are usually a popular play during periods of depreciation with quantitative easing being sparking this trend in recent years in Japan and the eurozone.

Pound-hedged MSCI UK ETFs are 20 per cent of their unhedged peers in the year to date.

But inflows more than three months after the UK vote to leave the European Union only represent 16 per cent of the $900m assets gathered in sterling-hedged products in the last 12 months.

Inflows to sterling-hedged UK exposed ETFs totalled $144m over the period, paling in comparison to the record $630m that entered WisdomTree Europe Hedged Equity Fund on a single day last year.

While large-cap foreign earning companies have rallied in the period following Brexit, overseas investors in unhedged products have failed to enjoy the benefits due to the pound’s slump.

IHS Markit research analyst Simon Colvin points out that there is a “19 per cent wedge” between the $1.9bn iShares MSCI United Kingdom ETF, the largest overseas listed UK fund and its sterling hedged peer, the $113m iShares Currency Hedged MSCI United Kingdom ETF.