New | Dollar bulls shift course, trim exposure in greenback
The shift comes as the dollar’s rally to 12-year highs shows signs of flagging
Some of the biggest dollar bulls in the global bond fund sector have reversed course in recent weeks, cutting exposure to the greenback amid concern the US Federal Reserve will delay a widely-anticipated interest rate hike.
The shift comes as the dollar’s rally to 12-year highs shows signs of flagging, hurt by soft US economic data and efforts by European central banks to stimulate their own economies, fund managers and analysts said.
Global bond fund managers pay close attention to countries’ relative economic performance, while their own performance can turn sharply on central bank moves. The dollar has benefited so much from the disparity between US economic performance and much of the rest of the world’s, that it’s difficult to think it will be maintained, said Jack McIntyre of the US$3.9 billion Legg Mason BW Global Opportunities Bond Fund.
"The dollar has had an unprecedented move in such a short period of time," said McIntyre, who said he cut his fund’s exposure to the dollar to 37 per cent, down from 43 per cent in early March, by removing currency hedges. "The rate of the appreciation of the dollar has to slow. It’s not sustainable. We’ve moved so far, so quickly."
Global bond funds report, as a percentage of their total assets, their exposure or allocations to various currencies. For dollars, for instance, the figures would reflect fund holdings of US corporate and government bonds, dollar-denominated bonds issued by foreign governments and corporations, and the effects of instruments like currency hedges.
Four of the 10 fund managers that Thomson Reuters’ Lipper unit said posted the biggest increases in their dollar allocations in 2014 told Reuters they have since trimmed their positions. One increased his exposure, while the other five declined to comment.
One of the biggest dollar enthusiasts, the $398 million Prudential Global Total Return Fund, cut its dollar exposure to 54 per cent of assets at the end of February, down from 58 per cent at December 31, Prudential said.