The dollar hedge

US ETFs have received $825Bn of net inflows YTD. It looks like investors are looking at the U.S. market still as a safe haven despite the fiscal situation and the concentration in the equity market. In fact, the S&P500 reached another all time high yesterday, its 25th for the year. But there is a difference with the past: if you look at the chart below, you’ll see that for the first time in decades, most inflows from foreign domiciled ETFs are currency hedged, meaning the are protected against further dollar depreciation. The trade seems to be long US equities and short the dollar, perhaps because there is no way to invest in AI outside of the U.S. but the currency may confínue to depreciate by design, to make US manufacturing attractive and competitive. That ability to segregate the assets from the currency, may give a further push to the U.S. market into the year end.

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