Rydex Euro-currency Fund, the first "currency ETF"

FXE : Rydex Euro-currency Fund, the first "currency ETF"


10 Day Chart

-Daily-

Daily: Compared with XEU

Weekly FXE

Weekly XEU


Roger Nusbaum submits: I wanted to follow up with a little more about FXE and how it might find a place in a portfolio. (My initial thoughts are here.) First I should be clear that for now this is more of a brain storming exercise and not so much an important call I・m trying to make.

The dollar has had a big run against the euro of late, a run that I have said before I think is closer to the end than the beginning. If I am right about that then the timing is not as bad as has been the case for other new products.

There is an interest rate component to this that will probably improve as the ECB has just had one rate hike and most analysts don・t think its the last. Aside from rising rates, generally being better for a currency it will also mean a higher yield for FXE holders.

I think this could be similar to a money market in one way, it is cash that pays a yield. It is unlike a money market in that it could move much more than investor just looking for a savings account might expect.

I mentioned in the other article that a 20% move in a currency is unlikely, but not a 5% move. If you buy what you think is a money market and you lose 5% on currency translation you will not be happy.

For now it is an easy way to access a foreign currency, easier and more liquid than the CDs at Everbank. I think there will be more of these but perhaps not just as ETFs. I・ve mentioned the structured product I own personally that owns a basket of Asian currencies. Perhaps growth will come in the structured product arena too. I・ll try to stay on top of these but if you hear something please let me know.

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Other ：pure； currency plays available outside the actual currency markets include the ProFunds Rising (RDPIX) and Falling () Dollar Funds, which are benchmarked to the New York Board of Trade・s US dollar index (USDX). Those instruments, structured as mutual funds, trade daily. The funds are slightly more diversified than the proposed Rydex ETF, with a 13.6% allocation to the Japanese yen, and 9.1% to the Canadian dollar; however, almost 80% of their weighting is in European currencies, with 57.6% in the Euro, 12% in the British pound, and smaller amounts of Swedish kroner and Swiss francs.

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