Dollar and Yen ETFs to Benefit From the Greek Drama - ETF News And Commentary
May 25 2012 - 11:47AM
Zacks
Greece continues to be in the news as the current opinion polls
suggest that pre-bailout parties will lose again the June election,
which may ultimately lead to “Grexit” from the monetary union. If
Greece leaves the Euro-zone, it would be very difficult for the
other bigger troubled countries like Spain and Italy to refinance
their debt as the investors would expect them to go next.
Further, the crisis in Europe is now not limited to the
peripheral countries but there are increasing signs that German
economy may also be faltering. Yesterday, the widely watched German
business confidence index had a surprisingly sharp fall after
rising for the past six months. At the same time, the European
political leadership remains divided on the measures needed to
tackle the crisis. (Read: Norway ETFs for Safer European Play)
Due to increasing risk and uncertainty in the Euro-zone,
investors are putting their money in assets perceived as “safe
haven”, including the US Dollar and Japanese Yen.
The dollar has gained against all major currencies, specially
the Euro, the British Pound and the Swiss Franc in the past few
weeks as the crisis escalated. The ICE Dollar Index, which tracks
the U.S. Dollar against a basket of currencies, has gone up from
78.9 to 82.5 in the last three months. (Read: Euro Small Cap ETFs:
The Way to Play Europe?)
After weakening earlier this year due to weaker trade data, the
Japanese Yen has grown stronger in recent weeks as concerns about
the euro zone grew. However, Japanese currency’s rise is likely to
be somewhat limited by recent downgrade of the country’s sovereign
debt by Fitch and Bank of Japan’s interventions in the currency
market. (Read: Poland ETFs Head-To-Head)
In normal times, Swiss Franc and to a certain extent UK Pound
are also regarded as safe haven currencies but as these currencies
are impacted by the events in Euro-zone, they have depreciated
against US Dollar. (Read: Poland ETFs Head-To-Head)
The investors can consider buying US Dollar and Japanese Yen
ETFs to profit from the ongoing uncertainly. However we would like
to add that currency funds are in general suitable only for
short-term trading or hedging and should not be considered for
longer-term investment.
PowerShares DB US Dollar Index Bullish
(UUP)
UUP seeks to track the price and yield performance of the
Deutsche Bank Long US Dollar Futures index. The index is comprised
of long futures contracts designed to replicate the performance of
being long the US Dollar against the Euro, Japanese Yen, British
Pound, Canadian Dollar, Swedish Krona and Swiss Franc.
The ETF has returned 1.42% year-to-date and it charges 75 bps to
the investors per year for operating expenses. Daily volume exceeds
800 thousand shares currently. Introduced in February 2007, the
fund has attracted $1.17 billion in assets so far.
CurrencyShares Japanese Yen
Trust (FXY)
FXY seeks to track the price of the Japanese Yen, by maintaining
a deposit account denominated in the currency. The interest on the
deposit account is used to pay for the trust’s expenses. The
ETF is down 3.08% year-to-date but has appreciated 2.7% in the past
month due to renewed interest in the currency. The fund made its
debut in February 2007 and has attracted $198.5 million in assets
till date. The ETF has an expense ratio of 40 basis points per
year.
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