– 18 Currency ETCs providing long or short exposure to G-10 currencies
– Includes exposure to local interest rates
– Fully collateralised
– Exposure to world’s most liquid asset class which has outperformed equities over 1yr, 3yrs and 5yrs ….
ETF Securities (ETFS) is planning to launch the world’s largest and Europe’s first Exchange Traded Currency (Currency ETCs) platform with trading expected to begin next week. Currencies are the most liquid asset class with over $3.2 trillion of trading each day yet it is one of the last asset classes to be packaged in the form of an exchange traded product. ETF Securities is a pioneer of ETCs having launched the world’s first Commodity ETC platform in Europe between 2003 and 2006 and which now has accumulated over $15 billion in assets and recent trading of approximately $1.4 billion per week.
Initially, 18 Currency ETCs will be listed on the London Stock Exchange (LSE) which will 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, NOK, NZK, SEK and YEN. The ETCs also provide exposure to local interest rates in addition to FX movements between the relevant Currency and US Dollars. The new Currency ETCs will be fully collateralised in order to mitigate counter-party risk and will be listed in the ETC segment of the LSE.
The new securities to be listed on the LSE are:
|Long Currency ETCs||LSE Code|
|ETFS Long AUD Short USD||LAUD|
|ETFS Long GBP Short USD||LGBP|
|ETFS Long CAD Short USD||LCAD|
|ETFS Long EUR Short USD||LEUR|
|ETFS Long JPY Short USD||LJPY|
|ETFS Long NZD Short USD||LNZD|
|ETFS Long NOK Short USD||LNOK|
|ETFS Long SEK Short USD||LSEK|
|ETFS Long CHF Short USD||LCHF|
|Short Currency ETCs||LSE Code|
|ETFS Short AUD Long USD||SAD|
|ETFS Short GBP Long USD||SGBP|
|ETFS Short CAD Long USD||SCAD|
|ETFS Short EUR Long USD||SEUR|
|ETFS Short JPY Long USD||SJPY|
|ETFS Short NZD Long USD||SNZD|
|ETFS Short NOK Long USD||SNOK|
|ETFS Short SEK Long USD||SSEK|
|ETFS Short CHF Long USD||SCHF|
Currency ETCs are intended for investors wishing to diversify their portfolio through the addition of a new asset class which has a low correlation with equities and bonds, or for those investors wanting to take advantage of tactical or strategic macro opportunities using the foreign exchange market. The table below shows that the returns of most major market currencies versus the US Dollar outperformed equities, bonds and real estate with lower volatility. For example, the MSFX Long AUD Index outperformed UK equities by 13.4, 55.4 and 37.2 percentage points over one, three and five years respectively with approximately 5% per annum of the total return over the five year period due to local Australian interest rates which have been incorporated into the MSFX Currency Index.
|MSFX Total Return Indices|
|Long Australian Dollar Index (TR)||36.7%||35.4%||54.7%||19.3%|
|Long British Pound Index (TR)||0.8%||-4.7%||7.6%||12.0%|
|Long Canadian Dollar Index (TR)||11.9%||11.5%||27.9%||13.3%|
|Long Euro Index (TR)||15.0%||23.6%||28.2%||11.1%|
|Long Japanese Yen Index (TR)||8.7%||28.3%||15.0%||13.2%|
|Long New Zealand Dollar Index (TR)||25.9%||29.1%||43.8%||18.1%|
|Long Norwegian Krone Index (TR)||18.4%||27.3%||28.2%||15.9%|
|Long Swedish Krona Index (TR)||8.5%||9.5%||10.5%||16.1%|
|Long Swiss Franc Index (TR)||10.9%||24.3%||20.4%||12.0%|
|Dow Jones Euro STOXX 50||26.1%||-15.8%||21.3%||32.9%|
|Fixed Income Index|
|US Tracker 1-10Yrs Bond Index||5.3%||21.3%||26.4%||4.8%|
|Real Estate Index|
|UK EPRA Real Estate||-5.0%||-66.4%||-37.8%||41.9%|
|* USD returns, as at 30 October 2009
Source: Bloomberg; ETF Securities
ETF Securities are launching the Currency ETC platform due to investor demand for secure, transparent and liquid exchange traded products. With Commodity ETC assets having nearly tripled in 2009 and volumes having doubled, it is clear that investors have widely accepted the ETC structure as a vehicle of choice for exposure to commodities. This is now been extended to include currencies.
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 and can be traded by investors on a regulated exchange in the same way as any equity. Currency ETCs will provide accurate and transparent currency exposure to recognised benchmarks in a single trade. In addition, Currency ETCs require no foreign currency account and no trading or management of futures/forward contracts as ETCs are simply priced off new currency indices published by Morgan Stanley.
The Currency ETCs will track newly launched Morgan Stanley Foreign Exchange Indices (MSFXSM Indices) and are designed to replicate a fully collateralised long or short investment in one of the G10 currencies against the USD and also provide exposure to local interest rates. The indices follow an objective and systematic methodology overseen by an index committee and are based off publicly available data sources that reflect actual quotes / trades by market participants.
Investors will be able to buy and sell the new ETCs on the London Stock Exchange, through regulated brokers or ETF Securities’ network of approved market makers and authorised participants. Currency ETCs will be traded with all the same order types available to equities, including market, limit and stop orders. The minimum trade size is one security, settlement is T+3 (trade date plus three business days) in CREST and each Currency ETC be subject to a 0.39% p.a. management charge.
Nik Bienkowski, Chief Operating Officer, commenting on this innovative launch said:
“Our investors have demanded access to new asset classes in a liquid and secure package. Currency ETCs will deliver this through an open-ended exchange traded security which is fully collateralised and available through ordinary brokerage accounts. After the events of the past year, transparency and security have been demanded by our investors and as a result of the ETC structure, assets in our Commodity ETC platform have increased by over $9 billion this year to reach $15 billion with recent weekly trading volumes of $1.4 billion.”
“ETF Securities’ Currency ETC platform provides 18 long and short Collateralised Currency Securities with exposure to G-10 currencies. Currencies have been one of the best performing asset classes, along with commodities, over the past 1 year, 3 years and 5 years. Currencies also have low correlation to other asset classes and low volatility, making currencies an asset which can improve portfolio performance through increased diversification. Currencies are the most liquid class available while Currency ETCs also provide access to local interest rates, which have averaged around 5% per annum over the past five years in the case of the Australian Dollar.”
Source:ETFWorld – ETFSecurities