Using Currency ETFs and ETNs to reduce Currency Risk And Investing in Indian Rupee and Chinese Yuan

For a while there have been a substantial number of ETF's that track the major currencies around the world. These give investors the opportunity to be able to position themselves based on Global Macro Economic views.Over the past few years you would have dine very well being invested in the higher yielding "Commodity  based Currencies such as the Australian Dollar.

What Are They?

• Currency ETFs (exchange-traded funds) track a singe foreign currency or basket of currencies by using foreign cash deposits or futures contracts. For the ETFs that use futures, excess cash is usually invested in high quality bonds, typically US Treasury bonds. The management fee is deducted from the interest earned on the bonds.

• Currency ETNs (exchange traded notes) are non-interest paying debt instruments whose price fluctuates (by contractual commitment) with an underlying currency exchange rate. Because they are debt obligations, ETNs are subject to the solvency of the issuer.

It is also a useful way to hedge a portfolio if you are heavily invested in a currency that is not your home currency. It means you can reduce the currency based risk when you repatriate your funds back to your home bank account.

Over the past few years I have suffered as a UK investor with a substantial number of positions in the US dollar. To my knowledge there are no US brokers that will allow  you to hold your funds in any other currency beside US dollars.That is not too major an issue if you are a US investor or plan to retire there or make any major purchases in US dollars.

However if you are based outside the US then it can turn a good portfolio performance in to a poor one or even a loss when you try to bring your funds back to your own Country.

Using Currency ETF's can help manage this risk-in the last little while there has been an increasing number of these ETF's launched and I have listed them below

Australian Dollar
CurrencyShares Australian Dollar Trust (FXA)
ELEMENTS Australian Dollar (ADE)

British Pound
CurrencyShares British Pound Sterling Trust (FXB)
ELEMENTS British Pound (EGB)
iPath GBP/USD Exchange Rate ETN (GBB)

Canadian Dollar
CurrencyShares Canadian Dollar Trust (FXC)
ELEMENTS Canadian Dollar (CUD)

Chinese Renminbi
Market Vectors - Chinese Renminbi/USD ETN (CNY)

Euro
CurrencyShares Euro Trust (FXE)
ELEMENTS Euro (ERE)
iPath EUR/USD Exchange Rate ETN (ERO)

Indian Rupee
Market Vectors - Indian Rupee/USD ETN (INR)

Japanese Yen
CurrencyShares Japanese Yen Trust (FXY)
iPath JPY/USD Exchange Rate ETN (JYN)

Mexican Peso
CurrencyShares Mexican Peso Trust (FXM)

Swedish Krona
CurrencyShares Swedish Krona Trust (FXS)

Swiss Franc
CurrencyShares Swiss Franc Trust (FXF)
ELEMENTS Swiss Franc (SZE)

Recently there have been two new exotic additions to the Currency ETF/ETN portfolio's namely an ETN that tracks the Indian Rupee and and ETN that tracks the Chinese Yuan.

Since it is not easy to directly invest in either of those currencies then the ETN may be a good way to go if you wish to get in  early particularly on the Chinese Yuan which most people are thinking about going long on with the expectations of the continued revaluation against the US Dollar in the years to come.

 

Best Wishes

 

Alan

Technorati Tags: Renminbi,Yuan,Rupee,ETF,ECN Currency ETF Currencies,Hedging

Will the Dollar Decline Further ?

The Financial Times had a short paragraph in their currencies section last week which caused a stir among currency traders. It told of a report which indicated that the central bank of the United Arab Emirates had set up a taskforce to help implement a possible depegging of the country's currency from the US dollar. This is something that had been written about months ago, but the talk of depegging jumped back up onto the trader's radar yesterday.

There is a meeting scheduled this  week by the six Gulf Cooperation Council states, including Saudi Arabia and the United Emirates. The committee meets four times a year and will be discussing the formation of a Gulf Central bank and other technical matters related to a proposed single currency. The meeting won't be attended by any central bank governors, so I don't expect an announcement of an agreement to drop the dollar peg at this time; but just the discussion is putting additional downward pressure on the US$.

 

On top of this the Euro continues to make new highs and the Swiss Franc is now at parity with the US dollar if we look at charts of the Euro and Swiss Franc over the last few years we can see the dramatic decline of the dollar in these two currencies.

 

 

The dollar has also reached below the psychological  100 yen mark as well, the slide in the dollar has been enough to start the rumour mill about  Central bank intervention, I personally don't think it will happen , but if the dollar keeps dropping as quickly as it has done in the last few weeks then it may spark some sort of response. The ECB must be starting to get concerned with the strength of the Euro and even Sterling is back  well over $2 even although the UK will suffer a lot of the same problems as the US since they too are having problems in the housing markets.

 

Every bit of bad news for the dollar is a boost for Gold, I still believe that the precious metals will do us proud in the medium term,sure there will be pullbacks some of them could be quite severe.I will be using any pullbacks as good buying opportunities. I also favour Silver a bit more than Gold for reasons I will go into in my next post.

If you are looking at ways to benefit from any further declines in teh dollar then look to the Currency ETF , I will be looking at the Yen  FXY and the Swiss Franc FXF.

 

Best Wishes

 

Alan

 

Technorati Tags: Currencies,Currency ETF,Gold Futures,Silver,Yen,Swiss France,Dollar Decline

,

Australian Stock Picks-Commodities Power the Aussie ASX

Continuing my theme of looking at the diversified ETF's(Exchange Traded Funds) coupled with my belief that we are in the midst of a secular Bull Market for commodities(who am I to argue with Jim Rogers !!) then I wanted to expand on my recent post around China and Taiwan and take a look at Australia.Since 2001 Australia has benefited from the boom in commodities especially the Metals such as Gold,Silver and Copper mined by companies such as BHP Billiton (NYSE : BHP) and the agricultural commodities-which some would argue are only recently starting to catch up with the rest of the booming Natural Resource Mkts-(witness Corn and Wheat over the last few months.)

If you believe as I do that we have a good few years to go before the Natural Resource boom tops out then the Australian Mkt should do very well in the next 5 or so years.Even although the ASX 200 broke out from its all time high in the last few weeks I still believe that we will see it higher in the years to come.It climbed 19% in 2006 topping its 2005 performance of just over 17%.

If that was not reason enough to look more closely at the opportunities in Australia the fact that the Australian Dollar has strengthened against the US dollar is another good reason for any American Investors or those who hold substantial amounts of their portfolio in dollars to consider the Australian Markets.

In order to benefit from the boom "down under|" then we could look at individual companies such as BHP Billiton (NYSE: BHP ) or Rio Tinto (NYSE: RTP) up 220% and 150% respectively over the last five years, but I prefer the diversification of a fund-especially when companies can be as volatile as BHP and Rio Tinto.I would therefore take a close look at iShares MSCI Australia Index Fund (AMEX: EWA).This will give you a broad exposure to Australian companies and also will give you the benefits of some protection against the potential of a falling US dollar.This ETF is up 180% since 2001 and put in a performance of nearly 30% last year-that being said I think there is still some more upside particularly if you take a 3-5 year view. I currently hold some of the EWA but would be looking to add some more on any weakness or pullbacks.

As ever do your research , I would be placing a Stop loss of 20% on my average price and be looking to hold,for 3+ years.

Best Wishes

Alan

Tags: EWA, BHP, RTP, ASX, iShares, Australia Stocks, Investing, ETF, Currencies, US Dollar

Powered by Qumana