Brexit betting game: Investors try to hedge GBP through ETFs

Brexit betting game: Investors try to hedge GBP through ETFs

Inflows into ETF Securities’ short-GBP ETFs have reached a record $275m, as investors continue to hedge against Sterling weakness in the event of a vote to leave the EU according to the fund provider.

“Most investors believe that the greatest short-term impact – of fear of Brexit rather than Brexit itself – will be on sterling and consequently we have seen a big rise in flows into our short-GBP ETFs, with approximately $219m ytd. Much of this is from investors adjusting their portfolios for Brexit risk, including the purchase of short- GBP exposure as a form of hedging,” says Townsend Lansing,  executive director and head of ETCs at ETF Securities.

Nevertheless, as a result of the recent sell-off of Sterling, there is also a growing number of investors taking long positions in the GBP, according to ETF Securities, inflows into long-GBP ETF’s almost equalled those of short-GBP ETF’s.

”These inflows are by far the highest since we launched the products, and stand almost twice as high as the flows at the time of the Scottish Referendum. This week foreign exchange markets appear more confident about the referendum result being for Remain, but flows into these Short-GBP ETFS continue unabated, and in fact are accelerating, as investors seek to hedge the potential downside of a Leave vote” he adds.

Besides a growing demand for short-GBP ETF’s Brexit concerns lead to increased demand for safe haven assets, with inflows into previous metal ETC’s increasing by $111m (€98.26m) throughout the past week alone.