Back From My USA Trip – New Currency ETFs

Just a quick post to mark my return to Sweden from the three weeks in the USA that took me to Washington, DC, camping at the beach in Maryland, visiting friends in Bozeman, Montana, Ennis Montana, a wedding in Park City Utah, a trade show, friends, and Tom Petty concert in New York City, and then flights through Dublin, Paris and Amsterdam before finally landing back in Gothenburg the day before Midsummer’s celebrations on Friday and then a weekend of fun, friends, family and dogs in Varberg, an awesome Swedish coast town. Some pics to follow on my photo blog, Sweden06.com.

It looks like a lot has been going on these past three weeks and not sure where to start other than to note…


…the fact that golbal stock markets have been extremely volatile, mostly to the downside, and are now a week or two into what looks like a weak rally attempt.

Also of note is the U.S. dollar’s bounce and the upcoming meeting of the Federal Reserve Board, which is expected to raise rates again in the face of what may be shaping up to be a combination of rising inflation, weakening economy and consumer, rising interest rates, and a weakening dollar once the Fed completes its tightening cycle.

On that note, I post the following CBSMW article about the new currency ETFs launched by Rydex, including the Currencyshares Swedish Krona (Amex: FXZS), which is up 5% as I write this on its first day trading. See complete article, below. Cheers!

ETF FOCUS
Rydex launches more currency ETFs
After euro fund, firm expands with half-dozen more on NYSE
By John Spence, MarketWatch
Last Update: 10:55 AM ET Jun 26, 2006

BOSTON (MarketWatch) — Rydex Investments on Monday listed six currency-based exchange-traded funds on the New York Stock Exchange, following up on the success of an earlier ETF that holds euros.

The new funds, called “Currency Shares,” will track the Australian dollar, the British pound, the Canadian dollar, the Mexican peso, the Swedish krona and the Swiss franc.
Late last year, Rockville, Md.-based Rydex introduced the first currency ETF, Euro Currency Trust (FXE), which has gathered more than $630 million in assets. It’s designed to rise in value when the euro strengthens relative to the dollar, and fall when the euro weakens. See previous ETF Investing.

“Financial professionals have taken advantage of the ability to access euro currency, while benefiting from consistent income distributions as a result of competitive euro currency interest rates,” said Tim Meyer, ETF business line manager at Rydex, in a statement. Rydex now manages 15 ETFs after Monday’s launch.

Shares of the new Currency Shares Mexican Peso Trust (FXM) and the Currency Shares Swedish Krona Trust (FXS) will represent about 1,000 pesos and kronas, respectively. Meanwhile, the remaining four — Currency Shares Australian Dollar Trust (FXA), Currency Shares British Pound Sterling Trust (FXB), Currency Shares Canadian Dollar Trust (FXC) — will hold 100 units of their respective currencies, Rydex said.

The funds, structured as grantor trusts, all have expense ratios of 0.4% of assets not including broker commissions, since ETFs trade like stocks.

Some market observers have described currency ETFs as similar to money-market funds but denominated in foreign currencies, which are held by the depository for the trusts, the London branch of J.P. Morgan Chase Bank is the trustee, according to Rydex. Bank of New York is the trustee, according to Rydex.

The ETFs also provide a yield based on overnight interest rates in the country of the currency it holds. This income can be used to offset fees.

For example, the interest rate for the Mexican peso ETF is 6.43%, and 0.78% for the Swiss franc fund, according to regulatory documents filed Monday. The ETFs’ yield can vary over time based on interest-rate movements.

Currency ETFs have been billed as efficient tools for allowing investors to diversify away from the U.S. dollar. However, some observers are worried investors could find themselves unduly exposed if they use ETFs to speculate in notoriously fickle and unpredictable currency markets.

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