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Top 7 Emerging Currency ETFs

Stocks in this article: CEW FXM BZF CYB ICN SZR FXRU

Our goal is to help investors identify and perhaps utilize emerging market currency ETFs. As emerging economies have developed and become significant players on the global stage, their currencies have gained more recognition. Many have been featured in so-called "carry trades" whereby investors in low yielding currencies play the higher yield spread in these currencies. This activity has waxed and waned with dramatic results given uncertain economic activity and higher volatility in emerging market currencies.

We'll feature the top seven for now since there aren't enough competing offerings established at this time

As a former CTA (Commodity Trading Advisor) and CPO (Commodity Pool Operator) I know the value of having an allocation to direct currency ETPs (ETF/ETNs). It's essential to have exposure to these new instruments to hedge against dollar destruction. 

Our previous technical analysis methodology involved evaluating monthly charts. However emerging currency ETFs 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 investing requires investors be more active. Nevertheless, we're willing to trade them with the trend being long, short or even out when it was more prudent to stay on the sidelines. We do this because we've seen a large price change over the years and remaining sanguine about this sometimes isn't an option. Therefore, it pays to be active and utilize a combination of weekly and daily technical charts to manage risk.

We rank the top 7 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 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

Simplistically, we recommend longer-term investors stay on the right side of the 22 weekly simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach. Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

#1: Wisdom Tree Dreyfus Emerging Currency ETF (CEW)


CEW seeks to achieve total returns reflective of both money market rates in selected emerging market countries available to foreign investors and changes to the value of these currencies relative to the U.S. dollar. Since the Fund's investment objective has been adopted as a non-fundamental investment policy, the Fund's investment objective may be changed without a vote of shareholders. The fund was launched in May 2009. The expense ratio is .55%. AUM equal $374M and average daily trading volume is 275K shares. As of mid-December 2011 the embedded dividend yield was 4.58% and YTD return was -8.38%.

Constituent currencies at launch: Mexican Peso, Brazilian Real, Chilean Peso, South African Rand, Polish Zloty, Israeli Shekel, Turkish New Lira, Chinese Yuan, South Korean Won, Taiwanese Dollar, and Indian Rupee.

#2: Rydex Mexican Peso ETF (FXM)  


FXM follows the spot price of the Mexican Peso. The fund was launched in June 2006. The expense ratio is .40%. AUM (Assets under Management) equal $25 million and average daily trading volume is 14K shares. As of mid-December 2011 the annual dividend was 2.62% and YTD return was -8.20%.

#3: Wisdom Tree Brazil Real Currency ETF (BZF)

BZF follows the spot price movement of the Brazilian Real currency. The fund was launched in May 2008. The expense ratio is .45%. AUM equal $119 million and average daily trading volume is 273K shares. As of mid-December 2011 the embedded dividend yield was 8.50% and YTD return was -5.45%.

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