Investors Shift Focus to Hedged International Equity ETFs Amid Volatility

1

The recent data from the Australian Securities Exchange (ASX) highlights this trend, with net inflows into Australian equity ETFs rising by 59% from $1.04 billion in March to $1.701 billion in April. In contrast, global equity ETFs experienced a dramatic surge of 162%, with inflows growing from $750 million in March to $1.9 billion in April. This shift is further corroborated by insights from Betashares in their monthly Australian ETF industry analysis.

According to InvestSMART CEO Ron Hodge, the intensification in global equity ETF investment can be attributed to geopolitical events, namely the tariff announcements from the Trump administration, which have significantly impacted market conditions.

The ASX data indicates a consistent pattern where domestic equity ETF inflows remain lower than those of global equity ETFs, with March as an exception. Contrary to expectations, retail investors, faced with market instability due to the tariffs, opted for international over domestic markets, likely influenced by their financial advisors' guidance to rebalance portfolios after substantial foreign market adjustments.

A significant move towards hedged international equity ETFs is visible as investors seek to mitigate risk from ongoing currency volatility. InvestSMART points out that from March to April, BlackRock’s iShares S&P 500 ETF witnessed a net movement of $1 million into its hedged counterpart, the iShares S&P 500 (AUD Hedged) ETF.

This shift is attributed to currency market fluctuations observed in April, where the Australian dollar (AUD) oscillated between $US0.60 and $US0.64. Economists largely predict that the Australian dollar will strengthen against the US dollar in the coming years, further supporting the inclination towards hedged investments.

Given that Australian equity markets account for only 2% of global markets, diversification into international equities becomes imperative for Australian investors, as more global equity ETFs than Australia-only ETFs are available on the ASX.

While flows into standard ETFs continue to dominate the market, the increasing demand for hedging reflects growing investor awareness of the necessity to buffer against currency volatility. Despite this shift, the core preference for mainstream ETFs—domestic, global equity, and fixed income—appears enduring.

Published:Monday, 19th May 2025
Source: Paige Estritori

Share this news item:

Finance News

Clear

Markets Respond Cautiously to U.S. Tax Changes Amid Mixed Global Trends 23 May 2025: Paige Estritori Financial markets exhibited a measured response following the U.S. administration's introduction of new tax legislation, a development that is expected to significantly increase the national deficit. Despite initial positive momentum on Wall Street, much of the gains receded by the session's end. Similarly, European markets experienced mild selloffs, signaling uncertainty among investors. In Asia, a mixed response was seen, with Australia outperforming other regional markets, although with minor losses. - read more

RBA Rate Cut Sparks Concerns Amid Rising Housing Market Outlook 21 May 2025: Paige Estritori The Reserve Bank of Australia's recent decision to reduce the cash rate by 25 basis points to 3.85 per cent has stirred reactions among young Australians and financial experts. The decision provides relief for current homeowners but poses challenges for first-time buyers due to anticipated housing price increases. - read more

Investors Shift Focus to Hedged International Equity ETFs Amid Volatility 19 May 2025: Paige Estritori New insights from InvestSMART reveal a noticeable shift in investment preferences from Australian equity Exchange Traded Funds (ETFs) to global equity ETFs, particularly hedged international equity ETFs. This development comes in light of investors' efforts to guard against currency fluctuations. - read more

RBA Rate Cut Possible Despite Eased US-China Tariffs 19 May 2025: Paige Estritori Economists are largely forecasting that the Reserve Bank of Australia (RBA) will reduce interest rates during its upcoming meeting, although recent international developments add some uncertainty to this prediction. Notably, US President Donald Trump's decision to lower tariffs on China prompted a reciprocal tariff reduction by Beijing, leading to a rise in risk asset values, including shares. - read more

Australia Records Historic Fall in Disposable Income 16 May 2025: Paige Estritori Recent data from the Australian Bureau of Statistics (ABS) revealed a historical drop in real per capita household disposable income for Australians, marking an unprecedented fall of around 8% since mid-2022. This decline represents a significant issue, with Australia experiencing the largest decrease in the developed world, according to the OECD. - read more