One of the
benefits of exchange-traded funds
is the abundance of innovative strategies that nearly any
investor can now access.
Currency ETFs certainly fall into that category, as access to
these markets was previously only available for professional and
institutional traders just a few short years ago.
Today, there are nearly 40 exchange-traded products that are
dedicated to tracking worldwide currencies from Latin America to
Europe and Asia.
The most widely followed of this group is the PowerShares DB
U.S. Dollar Bullish Fund (NYSE:
) which has over $665 million dedicated to tracking the daily
price fluctuations of the U.S. dollar versus a basket of
This basket is collectively made up of the euro, Japanese yen,
British pound, Canadian dollar, Swedish krona and Swiss
It's worth noting however that the euro makes up 57.60 percent
of the portfolio, while the Japanese yen is next in line at 13.60
UUP has certainly experienced its share of hardship over the
last year and is currently sitting in negative territory for
Social Media ETF Enters Bear Market Territory
Many experts attribute this slow decline in the U.S. dollar to
the ultra-low interest rate environment coupled with quantitative
easing efforts by the Federal Reserve which has eroded purchasing
power compared to other global currencies.
Most notably the CurrencyShares Euro Trust (NYSE:
) has been steadily increasing in value over that same time
frame. In 2013, FXE gained 3.84 percent and is continuing
to strengthen modestly this year as well.
Another currency ETF that has come on strong this year is the
CurrencyShares Australian Dollar Trust (NYSE:
), which tracks the daily price movement of the Australian
dollar. So far in 2014, FXA has gained 5.30 percent and
also pays a yield of 1.85 percent.
According to the fund company fact sheet, The Australian
dollar is the fifth most traded currency in the world, accounting
for approximately 8.6% of global foreign exchange
In addition, this ETF is one of the only currency-related
funds that pays a monthly distribution to shareholders.
Currency ETFs can be appropriate for investors that are
seeking non-correlated returns or access to specific regions that
they feel have the potential for a significant change in the
They may also be used as a tactical opportunity given shifting
global economic data that can influence currency values.
It is worth noting that these ETFs aren't suitable for all
portfolios, which is why investors that are new to these funds
should carefully research the risks and do their homework prior
© 2014 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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