U.S., Canadian funds are hedging FX risks by most in three years

U.S. policy uncertainty went beyond foreign-exchange management and drove 98 per cent of respondents to delay investment decisions. Photo by Kevin Dietsch/Getty Images

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Money managers in the United States and Canada are increasingly hedging their currency exposure due to risks from trade, central bank and Middle East policy.

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A survey of fund decision-makers by currency-hedging platform MillTech found that 94 per cent are hedging currency risk, the most since the the firm began tracking that three years ago.

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Roughly one-third cited U.S. trade policy and questions about monetary policy moves by the Federal Reserve and Bank of Canada. Geopolitical tensions in the Middle East followed at 31 per cent.

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“North American fund managers are being pulled in several directions at once,” said Eric Huttman, chief executive of MillTech, the execution and technology arm of currency manager Millennium Global Investments Ltd. “Trade tariffs, shifting central bank expectations and geopolitical tensions are making currency moves harder to predict and investment decisions harder to make.”

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Hedge ratios rose to 48 per cent from 45 per cent last year, with 35 per cent of funds planning to increase theirs further, according to MillTech. The increase comes after 97 per cent of funds experienced losses averaging US$731,000 during the first quarter from unhedged FX exposure due to geopolitical uncertainty, the firm said. Sixty-nine percent of those that don’t hedge are now considering it.

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The data comes from a MillTech survey of 250 senior finance decision-makers — 158 in the U.S. and 92 in Canada. The respondents represent firms with assets under management ranging from US$50 million to more than US$20 billion.

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Survey respondents reported the most common barriers to hedging were “burdensome” hedging infrastructure, a preference to deploy capital elsewhere and expenses, since hedging costs rose 57 per cent in the year leading up to June.

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MillTech also said U.S. policy uncertainty went beyond foreign-exchange management and drove 98 per cent of respondents to delay investment decisions.

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