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

The Significance of the First Currency ETF, the Rydex Euro Currency Trust (FXE)
Related Stocks: FXE

The first currency ETF ¡X the Rydex Euro Currency ETF ¡X began trading yesterday on the NYSE. This is an important development for the ETF world and for retail ETF investors in particular.

ETF Issuers Get It Right
Until now, the ETF issuers have inexplicably devoted their energies to issuing ETFs for asset classes that investors already have access to, such as new versions of market-cap and style US equity ETFs. Who really needed the iShares Morningstar style box ETFs, for example, when ETFs already existed that sliced-and-diced US equities into market cap and style boxes with Russell and Dow Jones indices?

But recently the ETF providers have started to get things right. First we saw the introduction of the two gold ETFs (tickers: GLD and IAU), then the filing for the silver ETF (ticker: SLV), the introduction of an oil ETF in London, and now the first currency ETF.

Why The New ETFs Matter So Much
These new ETFs are critical because they cover asset classes that retail investors don¡¦t yet have access to. Gold bullion behaves differently from gold stocks, so gold equity mutual funds are not a substitute. At least one precious metals pro thinks that investing in gold itself is preferable to buying gold stocks. But buying and selling gold bullion is expensive and complex ¡X just think about storage and insurance. So the new gold ETFs opened up gold as an asset class to a whole new class of investors.

Now the same is true of currencies. Most investors don¡¦t have access to foreign currencies, but currency diversification is one approach to portfolio diversification. The Rydex Euro Currency ETF will no doubt be the first of many currency ETFs.

New ETFs Cement The Advantage of ETFs Over Mutual Funds
The introduction of new-asset-class ETFs makes ETFs even more compelling as a tool for portfolio construction. Investors need to focus on asset allocation rather than stock picking, since asset allocation accounts for a far higher percentage of most people¡¦s portfolio performance than does stock picking. The introduction of these new ETFs therefore cements the advantage of ETFs over index mutual funds for a simple reason: there are no fund for pure gold, oil or currencies. But soon we¡¦ll see all of these ¡X and more ¡X in the ETF world.

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