Will Yen Spark Interest in Currency ETFs?

March 24, 2011

With all the talk of the Japanese Yen appreciating at what might best be described as an alarming rate, there’s plenty of interest in playing it against the dollar. But while the retail game may be new to ETFs, currency ETFs are an entirely different ballgame.

 The ETFs investors aren’t digging

For whatever reason, currency ETFs simply haven’t yet caught on with the investing masses. While they are generally boring, and slow moving investments, especially without leverage, they are perhaps the easiest vehicle investors have for moving dollar denominated funds into other ETFs. A number of different fund companies offer currency funds, though unfortunately no fund companies are doing the no-commission deal just yet.

 Options on currency ETFs, though thinly-traded, do offer exceptional returns on investment, and given the regulatory environment and currency brokers, they’re starting to become an alternative. It was, after all, just one year ago that 200:1 leverage was still fully available in the US. Today, though, investors had better be satisfied with 30-50:1 after the shakedown from financial regulators.

 An Asset Class without a Following

While there are more than 1000 ETFs in existence, plenty of funds have shuttered after failing to attract enough investor interest. At $175 million in assets, the CurrencyShares Japanese Yen Trust (FXY) fund isn’t likely to be cut any time soon, but it certainly isn’t one of the biggest on the block. If a competitor comes in town as has been common with other smaller funds, it might be only a matter of time a fee war incites a money-losing proposition for fund issuers.

Article Source:  http://www.investingblog.org

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