New York: The ferocious appetite for risk-taking in everything from Peruvian debt to global financial stocks has evaporated in a matter of weeks, if not days, and the biggest losers in the unwind have been concentrated in currency funds.

In May alone, funds that heavily invest in currencies, including the euro, Australian dollar and Russian rouble, have been the worst-performing, according to a Lipper analysis of all fixed-income funds, ended on May 20, which includes currency portfolios.

While the biggest losses so far this month are in the Australian Dollar Shares exchange-traded fund, down nearly 12 per cent, funds with euros have been suffering for much longer. The Australian dollar is down about 12 per cent since April 30, with most of the losses incurred in just over a week, according to Reuters data.

Assessment

"There's been risk reduction because of the reassessment of the global economic recovery, or lack thereof, thanks to the euro zone," said Tom Sowanick, chief investment officer at Omnivest Group in Princeton, New Jersey.

The euro has been battered, down 12 per cent year-to-date against the dollar and 15 per cent versus the yen, as worries continue that Greece and other euro countries will not be able to control spiraling fiscal deficits. The single currency still remains under selling pressure, down about 6 per cent between April 30 and May 20, even as the European Union and the International Monetary Fund last week pledged about $1 trillion for Greece and other euro countries.

The euro, which hit a four-year low of $1.2143 earlier last week, traded at $1.2570 on Friday.

Axel Merk, president and chief investment officer at Merk Investments in Palo Alto, California, said that as the euro plunged last week, he added even more to his Merk Hard Currency Fund — one of the top 20 losers of all fixed income and currency funds in May, down 6.53 per cent.

"If anything, it all reinforces my strategy. I still believe there's value in the euro," Merk said in an interview on Friday.

"Obviously, it is very hard to make money every day when everybody is piling on the same trades, with a lot of confusion in the markets... something has to give. There's not a lot of places to hide."

Jeff Tjornehoj, research manager at Lipper Inc, a funds research firm owned by Thomson Reuters, said narrowly focused strategies have posted ugly returns during the risk unwind.

"There are emerging market debt funds on the list because some hedge in local currencies ... they suffer owing to the strength in the US dollar," Tjornehoj said.

Investors have been rushing to exit positions on the euro while paring bets in favour of most higher-yielding currencies, including the Australian and New Zealand dollars, the Brazilian real and the South African rand — which have been caught in the unwind of "risk" trades.

In turn, traders have been flocking to the US dollar, the Swiss franc, the Japanese yen and even gold, perceived as safe havens in times of global economic turmoil.

Currency funds as diverse as Swedish Krona Shares, Franklin Templeton Hard Currency and Mexican Peso Shares all recorded losses in the past month.

Still, for fund managers like Merk, investors hurrying to pull the plug on the euro and other riskier trades should pause and think again.

"By no means I'm married to the euro. But when the whole world is writing about one single trade, when it becomes the cover of all magazines, it is a sign that the trade is overdone," he said.