Diversify Your Cash With New Currency ETFs

Make sure your expectations are realistic. Typically, currencies do not provide long-term growth, but remember that this is cash, so it is targeted for a part of the portfolio that is not expected to grow. The goal here should be protecting your purchasing power, not getting hot growth stock-style returns. To that point, I would suggest these be viewed not as conservative equity plays but aggressive cash plays. I believe this is an important distinction to make.

It's also important to be aware of some of the nuances of the currencies that underlie the ETFs due to be listed.

Both the Canadian and Australian dollars are considered commodity currencies, and these can be great diversifiers because the U.S. is a service-based economy. Commodity-based and service-based economies tend to be at different points in the economic cycle. Also note that Canada's proximity to the U.S. may make for a tighter correlation between the greenback and the Loonie than the greenback and the Aussie.

The Swiss franc's role (perceived or otherwise) in the world order is as a safe haven. The Swissi probably would appeal to everyone-in-the-bunker types. Fundamentally, Switzerland is growing, albeit slowly, and the Swiss central bank is in the early stages of a tightening cycle.

The Mexican peso looks like the most volatile currency of the bunch. It represents an emerging market. Investors considering this currency trust should be attuned to concerns that an extreme leftist candidate could win the presidential election in July and that Mexico may not be able to get new oil fields up and running very soon in the face of concerns about dwindling reserves.

The ETF likely to have the lowest volume, the one for the Swedish krona, could turn out to be the best performer. Sweden is in the early stages of a tightening cycle, has a healthy current account surplus and exports a lot of timber.

Rydex is targeting June 20 for these funds to start trading. Although I got a "no comment" response from a Rydex public relations representative when I asked if there will be more currency ETFs coming in the next few months, I believe we're likely to see them. The yen and the Singapore dollar seem like logical additions to the product line.