With expansionary dollar monetary policies post the 2001 and then 2008 bear markets investors started losing faith in the dollar given supply. And, this sentiment was transferred later to other fiat (paper money) currencies in general as 2011 euro zone debt issues surfaced. For U.S. citizens’ purchasing power is being lost and investors look to the forex (foreign exchange) to hedge their dollar exposure or speculate in markets. ETPs (ETF/ETN) have emerged as an easier, less complicated and less leveraged manner to participate in these markets.
As a former Commodity Trading Advisor (CTA) and Commodity Pool Operator (CPO), I know the value of having an allocation to direct currency ETPs. It’s essential to have exposure to these new instruments to hedge against dollar destruction not to mention exposure to gold.
Whereas our previous technical analysis methodology involved using evaluating monthly charts commodity markets must be viewed with shorter time horizons. This is due to obvious increased volatility but also due to the peculiar nature with which underlying commodity contracts trade. Most futures contracts to which ETPs are linked expire quarterly. To be effective, direct commodity investing requires investors to be more active although investors in gold in particular view the asset now as a long term hold. Nevertheless, a willingness to trade with the trend long or short, or even being on the sidelines at times, is from our view prudent and potentially more profitable. We do this because we’ve seen large price changes over the past and remaining sanguine about this sometimes isn’t a good option. Therefore, it pays to be active and utilize a combination of weekly and daily technical charts to manage risk.
Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high, however this is not our approach. receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.
For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from and and where available these are noted.
#10: Wisdom Tree Dreyfus Emerging Currency Fund
The Fund seeks to achieve total returns reflective of both money market rates in selected emerging market countries available to foreign investors and changes to the value of these currencies relative to the U.S. dollar. Since the Fund’s investment objective has been adopted as a non-fundamental investment policy, the Fund’s investment objective may be changed without a vote of shareholders. The fund was launched in May 2009. The expense ratio is .55%. AUM equal $342M and average daily trading volume is 145K shares. As of mid-March 2012 the YTD return is 6.70%. The one year return is .87%.
Constituent currencies at launch: Mexican Peso, Brazilian Real, Chilean Peso, South African Rand, Polish Zloty, Israeli Shekel, Turkish New Lira, Chinese Yuan, South Korean Won, Taiwanese Dollar, and Indian Rupee.
#9: PowerShares/DB Currency ETF
DBV follows the Deutsche Bank G10 Currency Future Harvest Index – Excess Return follows the Index is comprised of currency futures contracts on certain G10 currencies and is designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates. In other words, it’s basically a long/short strategy designed to produce income.
The fund was launched in September 2006. The expense ratio is .75%. AUM equal $384 million and average daily trading volume is 166K shares. As of mid-March 2012 the YTD return is 6.65%. The one year return is 11.98%.
#8: Rydex CurrencyShares Australia ETF
FXA follows the continuation futures contract of the Australian Dollar with an occasional use of interbank market positions. The fund was launched in June 2006. The expense ratio is .40%. AUM equal $721 million and the average daily trading volume is 259K shares.
As of mid-March 2012 the YTD return is 3.89%. The one year return is 11.46%.
#7: Rydex CurrencyShares Canada ETF
FXC follows the interbank and futures continuation contracts of the Canadian Dollar which constitutes roughly 9% of the Dollar Index. The fund was launched in June 2006. The expense ratio is .40%. AUM equal $581 million and average daily trading volume is 81K shares.
As of mid-March 2012 the YTD return is 2.71%. The one year return is -.43%.
#6: Rydex CurrencyShares Swedish Krona ETF
FXS follows futures continuation contracts and interbank market strategies to meet the trends of the SwedishKrona which represents roughly 4% of the Dollar Index.
The fund was launched in June 2006. The expense ratio is .40%. AUM equal $89 million and average daily trading volume is less than 15K shares. As of mid-March 2012 the YTD return is -7.77%. The one year return is -5.73%.
#5: Rydex CurrencyShares Swiss Franc ETF
FXF follows the continuation contracts of the Swiss Franc as traded on various futures exchanges. The fund was launched in June 2006. The expense ratio is .40%. AUM equal $429 million and average daily trading volume is less than 84K shares. As of mid-March 2012 the YTD return is 2.47%. The one year return is -2.29%.
Abruptly in the late fall the Swiss decided to peg their currency to the euro for intra-Europe trading reasons. This was done to arrest the rapid rise in the franc and to assist borrowers in Eastern Europe to paying back franc denominated loans. This decision has rendered the franc useless as a trading vehicle since you would do just as well to follow the euro.
#4: Rydex CurrencyShares British Pound Sterling ETF
FXB follows the continuation contract of the British Pound which accounts for nearly 13% of global foreign exchange transactions. When favorable the fund can also earn interest on T-Bills used as collateral for futures contracts.
The fund was launched in June 2006. The expense ratio is .40%. AUM equal $86 million and average daily trading volume is 51K shares. As of mid-March 2012 the YTD return is 1.12%. The one year return is -2.15%.
#3: Rydex CurrencyShares Japanese Yen ETF
FXY follows the continuation contract of Japanese Yen futures contracts. Interest can also be earned on T-Bills deposited as collateral to hold these futures contracts. The yen represents the second highest percentage of the Dollar Index at 13.7%. The fund was launched in December 2007. The expense ratio is .40%. AUM equal $270 million and average daily trading is 365K shares.
As of mid-March 2012 the YTD return is -7.77%. The one year return is -5.73%.
Leveraged long and short issues are available from ProShares.
#2: Rydex CurrencyShares Euro Trust ETF
FXE follows the euro which is the currency of 17 European Union countries. The Euro system consists of the European Central Bank (ECB) and the national central banks of the 17 countries belonging to the euro area is in charge and implementing monetary policy for the euro zone. It accounts for approximately 57% of the Dollar Index making it a major world currency.
The fund was launched in December 2005. The expense ratio is .40%. AUM equal $414 million and average daily trading volume is over 1.4M shares. As of mid-March 2012 the YTD return was 1.68%. The one year return was -5.93%.
Leveraged long and short issues are available from ProShares.
#1: PowerShares / DB USD Index Bullish & Bearish ETFs
UUP & UDN follow the same Deutsche Bank Dollar Index with one ETF allowing investors to invest in a long position (UUP) while the other (UDN) allows investors to invest in a short position on the same index. The Dollar Index is comprised of the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. The funds were launched in February 2007.
The expense ratio is .50%. AUM (Assets under Management) equal $1.2 billion million (UUP) and $91 million (UDN). Average daily trading volume is 4M shares (UUP) and 142K shares (UDN).
As of mid-March 2012 the YTD return was -1.29% (UUP) and one year return 1.65%. YTD (UDN) was .00% and one year return -3.91%.