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Top 10 Established Currency ETFs

Confidence is what gives currencies their credibility. The U.S. dollar went off the gold standard with the Bretton Woods's agreement during the Nixon administration since more dollars were being printed than there was gold to back them (55% to 22%). Taking the U.S. off the gold standard with the BW agreement made the dollar the world's reserve currency. This meant many commodities were priced in dollars. Some currencies were permitted to float freely while others maintained a "currency peg" to the dollar. As of late 2011 the U.S. Dollar is still nearly 70% of foreign reserve holdings.

With expansionary dollar monetary policies post the 2001 and 2008 bear markets, investors started losing faith in the dollar given supply. This sentiment was transferred later to other fiat (paper money) currencies in general as 2011 eurozone debt issues surfaced. For U.S. citizens' purchasing power is being lost and investors look to the forex (foreign exchange) to hedge their dollar exposure or speculate in markets. ETPs (ETF/ETN) have emerged as an easier, less complicated and less leveraged manner to participate in these markets. 

As a former CTA (Commodity Trading Advisor) and CPO (Commodity Pool Operator) I know the value of having an allocation to direct energy ETPs. It's essential to have exposure to these new instruments to hedge against dollar destruction not to mention exposure to gold. 

We rank the top 10 ETF by our proprietary stars system as outlined below. If an ETF you're interested in is not included but you'd like to know a ranking send an inquiry to support@ETFDigest.com and we'll attempt to satisfy your interest.


Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity


Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity


Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity


Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

 

Whereas our previous technical analysis methodology involved evaluating monthly charts, commodity markets must be viewed with shorter time horizons. This is due to obvious increased volatility but also due to the peculiar nature with which underlying commodity contracts trade. Most futures contracts to which ETPs are linked expire quarterly. To be effective, direct commodity investing requires investors to be more active although investors in gold in particular view the asset now as a long term hold.

Nevertheless, a willingness to trade with the trend long or short, or even being on the sidelines at times, is from our view prudent and potentially more profitable. We do this because we've seen large price changes over the years and remaining sanguine about this sometimes aren't an option. Therefore, it pays to be active and utilize a combination of weekly and daily technical charts to manage risk. Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

ProShares features inverse and leveraged long/inverse ETFs for those investors wishing to hedge or speculate.

Stock quotes in this article: UDN, FXE, FXY, FXB, FXF, FXS, FXC 

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