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
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
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.
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Dreyfus Emerging Currency ETF (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.
Mexican Peso ETF (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%.
Brazil Real Currency ETF (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%.
Chinese Yuan Currency ETF (CYB)
follows the spot price of the Chinese Yuan currency. The fund was launched in May 2008. The expense ratio is .45%. AUM equal $492 million and average daily trading volume is 270K shares. As of mid-December the annual embedded dividend yield is .56% and YTD return is .79%.
Indian Rupee ETF (ICN)
follows the spot price of the Indian Rupee. The fund was launched in May 2008. The expense ratio is .45%. AUM equal $19 million and average daily trading volume is 14K shares. As of mid-December 2011 the embedded dividend yield was 6.80% and YTD return -12.57%.
South African Rand ETF (SZR)
follows the spot price of the South African Rand currency. The fund was launched in June 2008. The expense ratio is .45%. AUM equal $7.5 million and average daily trading volume is less than 2K shares. (At these levels you might have to question whether the fund can survive from the sponsor's business view.) As of mid-December 2011 the embedded annual yield was 5.46% and YTD return was -18%.
Russian Ruble ETF (FXRU)
follows the spot price of the Russian Ruble currency. The fund was launched in November 2008. The expense ratio is .40%. AUM equal $5 million and average daily trading volume is less than 2K shares. (Here too the low AUM possibly portends the ETF may not survive as a viable offering for the sponsor.) As of mid-December 2011 the embedded yield is 4.58% and YTD return was -8.38%.
More from ETF Digest:
- TOP 10 ESTABLISHED CURRENCY ETFs
- TOP 10 PRECIOUS METALS ETFs
- TOP 10 BASE METALS ETFs
- TOP 10 HIGH YIELD DIVIDEND ETFs
- TOP 10 COMMODITY PRODUCERS ETFs
- TOP 10 ESTABLISHED DIVIDEND ETFs
- TOP 10 CONSUMER STAPES ETFs
- TOP 10 FINANCIAL ETFs
- TOP 10 ALTERNATIVE EVERGY ETFs
- TOP 10 ENERGY ETFs
- TOP 10 LATIN AMERICA SINGLE COUNTRY ETFs
- TOP 10 EUROZONE ETFs
- TOP 10 EUROPEAN REGIONAL ETFs
- TOP 10 UTILITIES ETFs
- TOP 10 GLOBAL REAL ESTATE ETFs
- TOP 10 U.S. REAL ESTATE ETFs
- TOP 10 INDUSTRIAL SECTOR ETFs
As times have become more difficult for all economies, emerging markets historically suffer more. This is true now as well. The currencies of these markets reflect economic difficulties as previously good trends have broken down. Some ETFs have very low AUM and this could threaten their ongoing existence so caution is advised.
It's also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab's ETFs and Scottrade's Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned.
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The ETF Digest has no current positions in the featured ETFs.
(Source for data is from ETF sponsors and various ETF data providers)
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
Dave Fry is founder and publisher of
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