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Investors Shift Focus to Hedged International Equity ETFs Amid Volatility

Investors Shift Focus to Hedged International Equity ETFs Amid Volatility

Investors Shift Focus to Hedged International Equity ETFs Amid Volatility?w=400

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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.

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

Please Note: If this information affects you, seek advice from a licensed professional.

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