Five New Ways to Play the Currency Market

For those investors brave enough to play the currency markets and who have been looking for a "do-it-yourself" vehicle, Wisdom Tree Investments and Dreyfus have teamed up to develop currency ETFs that start trading on May 13.

Yes, from the comfort of your own home, you too can mix it with the big guys in the tumultuous world of global currency investing.

Investors should note that the WisdomTree/Dreyfus funds invest in very-short-term, investment-grade instruments. However, they are not "money market" funds and are not designed to maintain a constant share price.

The five new ETFs went effective as of April 8 and are listed below. We do not have a rating record for these funds, as they have just been released, and the TSC models require at least one year of performance before we can issue a rating on an ETF. (Please see the table below.)

Fund Name Ticker
WisdomTree Dreyfus Chinese Yuan Fund CYB
WisdomTree Dreyfus Brazilian Real Fund BZF
WisdomTree Dreyfus Indian Rupee Fund ICN
WisdomTree DreyfusEuro Fund EU
WisdomTree DreyfusJapanese YenFund JYF

However, we can rate the other main supplier of currency ETFs: Rydex Investments and its brand of CurrencyShares funds.

Below is a list of these funds and their TSC ratings.

Name Ticker TSC Grade 1 Month Return YTD Return
CurrencyShares Australian Dollar Tr FXA A+ -1.19 6.19
CurrencyShares Brit Pnd Sterling Tr FXB B 0.74 1.45
CurrencyShares Canadian Dollar Tr FXC A- -3.38 -1.97
CurrencyShares Euro Trust FXE A+ 4.36 9.17
CurrencyShares Japanese Yen Trust FXY A+ 4.83 12.47
CurrencyShares Mexican Peso Trust FXM A+ 0.51 3.51
CurrencyShares Swedish Krona Trust FXS A+ 4.04 9.81
CurrencyShares Swiss Franc Trust FXF A+ 4.75 14.32

With poor returns on the world equity markets likely to continue and the bond markets requiring continual drip-feeding of assistance from the Federal Reserve, investors in the world currency markets fared very well in the first quarter. Most of the Rydex funds carry an A-plus rating.

Investors should take careful note that investing in the global currency markets can carry significant and specific risks that may not be present in more conventional equity and bond markets. These markets can change on a dime in some instances and can exhibit a high degree of volatility.
Sam Patel, CFA, is the manager of mutual fund research for the Ratings.

In keeping with TSC's Investment Policy, employees of Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

While Patel cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.