2009 an Extremely Strong Year for High-yield and Commodity Currency ETCs with ETFS Long AUD Topping Performance, up 32% ….
- Carry trade strategies are back on investor radars as high-yielding currencies dominated performance on the ETF Securities’ Currency ETC platform;
- ETFS Long AUD Short USD (LAUD) surged 32%, ending 2009 as the best performing Currency ETC. LAUD has significantly outperformed other asset classes over the past 3 and 5 years, up over 30% and nearly 50%, respectively;
- Commodity currencies generated impressive returns in 2009, with the MSFXSM Indices tracking commodity currencies outperforming MSFXSM non commodity currency indices by an average of over 20 percentage points;
- Investors have embraced currency investment via ETCs, driving AUM on the Currency ETC platform to nearly $50mn;
- Although the global economic outlook remains mixed, the flexibility of the ETFS Currency ETC platform allows investors to implement a range of views by investing in a choice of 18 long and short Currency ETCs;
The Australian Dollar emerged from 2009 as the strongest performer on ETF Securities’ Currency ETC platform, with the ETFS Long AUD Short USD (LAUD) surging over 32%, driven by investors’ renewed search for yield and a renewed appetite for commodity-related investments. The index return also incorporates an implicit interest rate return. Over 2009, investors in LAUD would have earned an implied interest return of 3.25%*, significantly better than the return of a typical local at-call bank deposit account. Australian Dollar ETCs accounted for nearly 25% of the volume traded on the Currency ETC platform since inception. The MSFXSM Long New Zealand Dollar Index followed closely behind, generating a solid return of 29%, with an implied interest return of around 2.5%*.
Currencies were one of the top performing asset classes over the past three and five years – the MSFXSM Long Australian Dollar Index returned a striking 31%* over three years and 47% over five years. A comparison with other asset classes shows how attractive an FX investment can be: the MSFXSM Long Australian Dollar Index outperformed both the S&P500 and the DJ STOXX 50 equity indices by around 47 percentage points over the past three years. Over the past five years, the MSFXSM Long Australian Dollar Index outperformed the S&P500 and the DJ STOXX 50 equity indices by around 45 percentage points and 32 percentage points, respectively.
During 2009, commodity currencies performed remarkably well. The MSFXSM G10 Currency Indices that track commodity related currencies outperformed the other MSFXSM G10 Currency Indices by over 20 percentage points last year. The top four performing G10 currencies over 2009 had solid economic ties to commodity markets. In particular, the MSFXSM Long Norwegian Krone Index and the MSFXSM Long Canadian Dollar Index posted strong returns of 22% and 17%, respectively, as crude oil rallied 78% last year.
ETF Securities, which listed Europe’s first and the world’s largest Currency ETC platform in 2009, saw trading volumes in long and short Australian Dollar (LAUD;SAD), New Zealand Dollar (LNZD;SNZD), Canadian Dollar (LCAD;SCAD) and Norwegian Krone (LNOK;SNOK) ETCs contribute 40% of the volume traded on the ETFS Currency ETC platform in 2009, as investors increasingly used these ETCs to implement their trading strategies.
At the other end of the scale, the Yen fell against the US dollar last year as investors preferred higher yielding currencies, driving the MSFXSM Short Japanese Yen Index up by 2% in 2009 and by nearly 8% in December alone. ETFS Short JPY Long USD (SJPY) is currently the most popular Currency ETC, accounting for 42% of assets under management at the end of 2009.
|MSFX Total Return Indices|
|Long Euro Index (TR)||3.1%||15.3%||17.4%|
|Long Japanese Yen Index (TR)||-3.1%||26.4%||8.9%|
|Long Norwegian Krone Index (TR)||22.2%||18.7%||20.8%|
|Long Swedish Krona Index (TR)||9.1%||1.7%||1.7%|
|Long British Pound Index (TR)||11.1%||-10.1%||0.2%|
|Long Swiss Franc Index (TR)||3.1%||20.0%||13.8%|
|Long Australian Dollar Index (TR)||32.0%||31.1%||47.3%|
|Long Canadian Dollar Index (TR)||16.5%||17.8%||29.2%|
|Long New Zealand Dollar Index (TR)||29.0%||21.9%||36.9%|
|Short Euro Index (TR)||-4.2%||-6.7%||5.4%|
|Short Japanese Yen Index (TR)||1.6%||-15.0%||13.4%|
|Short Norwegian Krone Index (TR)||-20.4%||-12.1%||-1.7%|
|Short Swedish Krona Index (TR)||-12.0%||1.8%||16.2%|
|Short British Pound Index (TR)||-11.9%||18.4%||22.2%|
|Short Swiss Franc Index (TR)||-4.3%||-10.2%||8.5%|
|Short Australian Dollar Index (TR)||-26.4%||-23.6%||-21.9%|
|Short Canadian Dollar Index (TR)||-16.4%||-10.7%||-6.0%|
|Short New Zealand Dollar Index (TR)||-25.3%||-16.6%||-15.5%|
|Dow Jones STOXX 50||32.2%||-15.6%||15.8%|
*Returns are in USD to 31 December 09 from: 31 December 04 (5 Yrs), 31 December 06 (3 Yrs), 31 December 08 (1 Yr).
The first 18 Currency ETCs listed on the London Stock Exchange (LSE) on the 12th November 2009 track recently launched MSFX Currency IndicesSM. The initial Currency ETCs provide long or short passive exposure to G10 currencies versus the US Dollar and include AUD, CAD, CHF, EUR, GBP, JPY, NOK, NZK and SEK. The ETCs also provide exposure to local interest rates in addition to spot FX movements between the relevant Currency and US Dollars. The new Currency ETCs are fully collateralised in order to mitigate counter-party risk and listed on the ETC segment of the LSE. Similar to Exchange Traded Funds (ETFs), ETCs are liquid, accessible and simple. ETCs can be created and redeemed on a continuous basis by market makers, matching the tremendous liquidity of the underlying foreign exchange markets but traded on a regulated exchange in the same way as an equity.
Martin Arnold, Senior Analyst, commenting on 2009 performance said:
“Investors in commodity-linked currencies were the big winners in 2009, as the global economy rebounded and commodity prices surged. On a longer-term view, emerging markets will likely continue to drive demand for raw materials and that should be supportive of ETCs tracking commodity currencies like Australian Dollar and Norwegian Krone. However, high performing G10 currencies will need to sustain the pace of growth to continue their upward trajectory. Elsewhere in the G10 group, there are plenty of risk factors that FX investors need to keep a close eye on: sovereign credit ratings will remain an issue in 2010 and the questions of ‘how and when’ the withdrawal of public stimulus measures, which have been extremely supportive of global growth in 2009, occurs. Currency ETCS allow investors a simple and secure way to implement a range of different investment or macroeconomic views. More recently, we have seen a strong pick-up of activity in our Long USD ETCs, indicating some investors may be building positions to hedge against a possible risk asset correction.
Source: ETFWorld – ETFSecurities