Since the Reserve Bank of Australia’s announcement to reduce cash rates to 2.75 per cent on 8 May, the Australian dollar has dropped approximately 10 per cent against the US Dollar, Euro and the British Pound.
With a weakening AUD, investors have shown particular interest in currency ETFs, which are designed to go up when the local dollar weakens against its paired currency. BetaShares Currency ETF suite includes the US Dollar ETF (ASX: USD), British Pound ETF (ASX: POU) and Euro ETF (ASX: EEU).
Since 8 May, the average daily trading value for the Currency ETF suite has more than doubled compared to average daily values since the products’ inception. Inflows have also been substantial, with the three ETFs together gaining AUD53m of net inflows since the RBA cut.
“There has been strong interest from advisers and retail investors in our currency ETF products over the last two months, with significant net inflows and increased trading value. Enquiries have also increased dramatically, with our currency ETF website traffic increasing 250 per cent since April, as people consider ways to profit from or protect against a weakening Australian dollar,” says Alex Vynokur, managing director at BetaShares.
Outside of currency returns, advisers are also using the US Dollar ETF for transition management. A number of Australian advisers have been pairing back international equities positions in light of recent equity market volatility, but wanting to preserve their US Dollar currency exposure through a US Dollar ETF, whilst they wait for equity market volatility to settle down.
“We are beginning to see advisers follow the lead of institutional investors in adopting strategies such as transition management and sector tilting, complimenting the more traditional passive investment strategies,” Vynokur says.