Are Currency ETFs Zero-Sum Speculation or a Hedge Against Risk?
In terms of currency-basket assets, WisdomTree dominates with its WisdomTree Emerging Currency ETF (CEW), which has $148 million in assets, and the WisdomTree Commodity ETF (CCX), with only $11 million in assets. A newer alternative is the PIMCO Foreign Currency Strategy ETF (FORX), which just started trading last February.
CEW seeks an equal-weight exposure to 15 emerging market currencies. Regionally, CEW allocates 46% to Asia, 26% to Latin America and 26% to Europe, the Middle East and Africa. CEW can pay a dividend but has not paid one since December 2011. Perhaps the most appealing thing about CEW from a diversification standpoint is its 0.25 correlation to the S&P 500, according to ETF Replay.
CCX offers roughly equal exposure to New Zealand, Australia, Norway, Brazil, Canada, Chile, South Africa and Russia. Similar to CEW, CCX can pay a dividend but has not done so in two years. Where CEW captures broadly positive trends in emerging markets, CCX is a mix of developed and developing countries that should benefit from positive trends in emerging markets.
Pimco's FORX is an actively managed fund that can also include short exposure. Currently FORX has 15% long exposure to Norway, 14% in Brazil and 11% in Mexico, and a 7% short position in Japan.Over the last 12 months, all three funds have endured high single-digit losses. That certainly is off-putting. Follow @randomroger This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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