Saturday, December 25, 2010

CURRENCY ETF-THE NEW DIVERSIFICATION


CALL OF THE HOUR.

With Global imbalances on the never ending rise and huge budget deficits of the Developed economies currency fluctuation is the new tremor of the quakes being felt. With the recent debacle of European nations we find

In other words in the coming year of 2011 we will find Europe and US going for massive budget cuts and imposition of higher rate of taxes. This will create burden and slower growth opportunities to the tune of 100% .Since budget cuts will lead to slower growth and imposition of higher taxes will result to less savings for the consumer. All these will exert pressure on the Euro, Pound and US dollar. Their will be a huge reflection of fluctuation in all these currencies. Moreover when we look towards the Asian and Developing economies we find interest rates pull back from post recession levels to pre-recession levels will exert further pressure on Yen, Rupee primarily.

In the past couple of months many economist across the world have raised their voices on currency war and many such subjects. Well say as diplomat one should make money from any war. Hence these currency wars need to be exploited and money needs to make from the war. Currencies are driven by the macro environment which is it a hot topic, and because currencies are valued relative to other currencies, if one goes up then the other one is going down. Thus an investor is always able to profit through currencies, regardless of the market direction.

GLOBAL ETF:
If we look globally we find that their have been huge demand and financial products related to Currency ETF. In the developed economies currency ETF have made investments and currency fluctuation a profit making game of the financial streets. If we make a quick look towards the probable currency ETF we find on the ladder of Developed economies then one will find the proof of the pudding.

Broad Currency ETFs

• AYT – Barclays Global Emerging Markets Strategy (GEMS) Asia 8 Index ETN

• ICI – Barclay’s iPath Optimized Currency Carry ETN

• DBV – PowerShares DB G10 Currency Harvest ETF

• CCX - WisdomTree Dreyfus Commodity Currency Fund

• CEW – WisdomTree Dreyfus Emerging Currency ETF

• JEM - Barclays GEMS Index ETN

• PGD - Barclays Asian & Gulf Currency Reval ETN

ETFs that Track a Single Currency

United States Dollar ETFs

• UUP - PowerShares US Dollar Bullish ETF

• UDN - PowerShares US Dollar Bearish ETF
United States Dollar / Foreign Currency ETFs

• GBB – iPath GBP / USD Exchange Rate ETN

• CNY – Market Vectors Chinese Renminbi / USD ETN

• ERO – iPath EUR / USD Exchange Rate ETN

• INR – Market Vectors Indian Rupee / USD ETN

• JYN – iPath JPY / USD Exchange Rate ETN

• ADE - ELEMENTS Australian Dollar / USD Exchange Rate ETN

• EGB - ELEMENTS British Pound /USD Exchange Rate ETN

• ERE - ELEMENTS Euro / USD Exchange Rate ETN

• CUD - ELEMENTS USD / Canadian Dollar Exchange Rate ETN

• SZE - ELEMENTS USD / Swiss Franc Exchange Rate ETN

Euro ETFs

• FXE - CurrencyShares Euro Trust

• ERO – iPath EUR / USD Exchange Rate ETN

• EU – WisdomTree Dreyfus Euro ETF

• ULE – ProShares Ultra Euro ETF

• EUO – ProShares UltraShort Euro ETF

• URR – Market Vectors Double Long Euro ETN

• DRR - Market Vectors Double Short Euro ETN

• ERE - ELEMENTS Euro / USD Exchange Rate ETN

British Pound ETFs

• FXB – CurrencyShares British Pound Sterling Trust

• GBB – iPath GBP/USD Exchange Rate ETN

• EGB - ELEMENTS British Pound /USD Exchange Rate ETN

Even when we look into the pockets of Developing economies and Asian economies we will not find such numbert of ETF as compared to Developed Economies.

Japanese Yen ETFs

• FXY – CurrencyShares Japanese Yen Trust

• JYN – iPath JPY / USD Exchange Rate ETN

• JYF – WisdomTree Dreyfus Japanese Yen ETF

• YCL – ProShares Ultra Yen ETF

• YCS – ProShares UltraShort Yen ETF

Australian and New Zealand Dollar ETFs

• FXA - CurrencyShares Australian Dollar Trust

• BNZ – WisdomTree Dreyfus New Zealand Dollar ETF

• ADE - ELEMENTS Australian Dollar / USD Exchange Rate ETN

Broad and Sector China ETFs

• CHIB - Global X China Technology ETF

• CHIE - Global X China Energy ETF

• CHII - Global X China Industrials ETF

• CHIM - Global X China Materials ETF

• CHIQ - Global X China Consumer ETF

• CHIX - Global X China Financials ETF

• CHXX - China Infrastructure Index ETF

• CQQQ - Claymore China Technology ETF

• CZI - Dixerion Daily China Bear 3x Shares ETF

• CZM - Dixerion Daily China Bull 3x Shares ETF

• ECNS - iShares MSCI China Small-Cap Index Fund

• EWGC - Rydex Russell Greater China Large Cap Equal Weight ETF

• EWH - iShares MSCI Hong Kong Index ETF

• FXI - iShares FTSE/Xinhua China 25 Index ETF

• FXP - UltraShort FTSE/Xinhua China25 Proshares ETF

• GXC - STRK SPDR S&P China ETF

• HAO - Claymore/AlphaShares China Small Cap ETF

• PEK - Market Vectors China ETF

• PGJ - PowerShares Golden Dragon Halter USX China ETF

• SNO - NETS Hang Seng Index ETF

• TAO - Claymore/AlphaShares China Real Estate ETF

• YAO - Claymore/AlphaShares China All-Cap ETF

• YXI - Proshares Short FTSE / Xinhua China 25 ETF

Chinese Currency ETFs

• CYB - WisdomTree Dreyfus Chinese Yuan ETF

• CNY - Market Vectors Renminbi/USD ETN

Broad Currency ETFs that include China Currency

• AYT - Barclays GEMS Asia-8 ETN

• CEW - WisdomTree Dreyfus Emerging Currency ETF

• PGO - Barclays Asian & Gulf Currency Reval ETN

This clearly indicates that Asian economies and developing economies are becoming new island of new financial products. The last several years have seen tremendous innovation on the product development front in the ETF industry. As a result, investors now have more options than ever before, including increasingly targeted products and access to increasingly complex asset classes and investment strategies. The industry remains very top-heavy, with a handful of funds accounting for the bulk of assets and trading volume. “The last several years have seen tremendous innovation on the product development front in the ETF industry. As a result, investors now have more options than ever before, including increasingly targeted products and access to increasingly complex asset classes and investment strategies. The industry remains very top-heavy, with a handful of funds accounting for the bulk of assets and trading volume. The economies are coming up with new currency products since earlier this type of global currency imbalance was not their. As the word of globalization has spreads the more demand to protect the downside risk of currency fluctuation have been developed.

MECHANISIM OF CURRENCY ETF GROWTH.

Investors are shifting from traditional financial products to new globalised products. Earlier financial products used to remain with the wall of a particular country where as now with the wind of globalization in trade practices currency ETF is picking up in the Developing economies. While designing investment portfolio Currency ETF is now becoming a new trend of demand. We will find currency ETF demand coming primarily from IT industry. Since they are prune to the highest degree to currency fluctuation. Global cross border investments needs currency ETF and this demand of trade is picking up each day in the Asian as well as developing economies.

Earlier currency ETF was acclaimed as risky product since it was quite hard to predict and speculate the movement of the currency. But after recession and further blast of financial time bombs across the world have rattled the currency market and hence brought imbalances as the new guest. Currency fluctuation is the new child which will keep on growing as long as Developed economies will not bring down fiscal deficit and GDP and other economic wheels don’t pick up the pre-recession growth numbers. Until then we will find money being printed from currency ETF. Interest rate fluctuation across the global market is another boon for the currency ETF market.

In the developed economies we can foresight a prolonged lower rate of interest rates and no near future of rise in rates. Where as in developing nation we have witnessed interest rates hike followed with more hikes to come up in 2011.Infaltion is one of the most important game players behind currency ETF. When ever inflation goes up as incase of India and China monetary measures are applied resulting surge in currency ETF gains. When ever inflation don’t come up as in case of US printing of money brings gains for currency ETF. So in either of the both ways currency ETF will bring growth for the investments.

GLOBAL CURRENCY ETF GROWTH/RETURN.

SIMPLICITY ADVANTAGES .
Currency ETF is not like the derivative products where complexity is the other name of its identity. Currency ETF are much safe as compared to them. Indian economy is yet to witness products of currency ETF particularly from the mutual fund industry. The mutual fund industry can find lot of opportunities from Currency ETF products. As less people are interested to keep their savings under any currency form as its quite impossible to predict which currency will devalue the savings, in that case currency ETF will give them a balanced position to and risk control over fluctuating currency.

Currency ETF favors an investment opportunity in many ways. Shedding away the unnecessary part of the advantages of currency ETF and just finding out the prime growth drivers of the product we find:

Foreign Exposure

If you feel there are some foreign regions that are potential growth areas or emerging markets, a country ETF may be the perfect asset to increase your international exposure.

Diversification

If your portfolio is heavy on domestic investments, some foreign exposure may help balance your overall stratagem. Adding a country or region ETF to your portfolio can expand your investment horizon.

Risk Management

If your portfolio or business has exposure to a certain region, investing in a foreign ETF may be a good way to reduce that risk and protect you against negative developments in certain countries.

INDIAN MUTUAL CURRENCY ETF :
Indian mutual fund industry needs to bring currency ETF into the market so as investors in this segment are not from only HNI or retail. We will find Indian corporate doing parking of funds to rep the profits of currency fluctuation. Apart from profit one makes diversification and risk management will be the key driver of Indian Currency ETF products. I will not be surprised to find debt funds loosing sheen and surge in currency ETF investment avenues.

The Indian mutual fund industry is yet to grow in product specification. We have developed a number of funds of same nature but less new diversified products matching the global risk management have been developed. We need products where domestic as well as global investments in Indian mutual funds will take new shape and size. We might see many new mutual funds in India in the new decade. But we need to design them accordingly.

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