Foreign investors are increasing dollar hedges on US stock portfolios to counter weakening currency

From Yahoo Finance: 2025-07-01 15:58:00

Overseas asset managers and pensions are adding protection against a weakening dollar, reducing dollar exposures and increasing hedge ratios for U.S. stock portfolios to counter the currency’s fall. About 10% of Russell Investments pension fund clients in Europe and the UK have already increased hedge ratios on their international stock portfolios.

The dollar is down 10% for the year, while the S&P 500 has recovered 24% since April and global stocks have risen 16%. BNP Paribas Asset Management has been reducing dollar exposures and increasing positions in other currencies, citing a “more hostile” U.S. policy regime.

Foreign investors hold over $30 trillion in U.S. securities, prompting increased hedge ratios to protect against currency risk. Data from Russell showed benefits of hedging for euro-based investors, with a euro-hedged MSCI USA index flat for the year while an unhedged version was down 8.3%.

Managers hedge currency exposure by selling the dollar against their base currency and using derivatives like options. Forward selling of the dollar is at its highest in four years, indicating investor concerns about dollar volatility. Investors reallocating to U.S. assets after April’s selloff are now hedging those exposures.

Read more: Analysis-Foreign investors increase dollar hedges on US stock portfolios