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- Assets rise over $45 million following successful launch on the LSE
- 74% of investors currently long USD, with USD strengthening 2.8% since mid
November
- Eight liquidity providers and four Multilateral Trading Facilities signed up to Currency ETCs, the most successful launch yet
ETF Securities (ETFS), which launched the world’s largest and Europe’s first platform of Exchange Traded Currencies (Currency ETCs) in November 2009, has seen assets in the platform grow to $45 million after only two months of trading with weekly trading volumes rising over 400% over the period.
Currency ETCs which are Long USD and short G10 currencies have seen the most interest from investors, making up 74% of assets with USD strengthening 2.8% since the inception of the currency platform (as measured by the US Dollar Index, DXY). ETFS Short JPY Long USD (SJPY) has been the most popular trade, capturing 49% of assets, while the Canadian dollar held the most net long positions.
The platform has seen steady increasing turnover since the inception with trading volumes growing at over 150% per week. 75% of trading volumes have occurred in ETCs which are long USD and short G10 currencies, with ETFS Short AUD Long USD (SAD) and ETFS Short GBP Long USD (SGBP) each taking 21% share of trading volumes, followed by ETFS Short EUR Long USD (SEUR, 14%) and ETFS Short JPY Long USD (SJPY, 12%).
Martin Arnold, Senior Analyst, ETF Securities, commented:
“The return of investor risk appetite was a key theme in 2009 and signaled the beginning of a long period of structural weakness for the US Dollar. More volatile currencies like the Australian and New Zealand Dollars performed strongly. Sentiment began to reverse toward year-end as investors became more wary about whether the strong price performance of risk assets in 2009 could be sustained. As a result, the beginning of 2010 has been characterised by a degree of caution. As a result, investors have looked to use short Currency ETCs like ETFS Short EUR Long USD (SEUR) and ETFS Short JPY Long USD (SJPY) to implement more cautious trading strategies”.
Since inception, Currency ETCs which were Long USD (except for Canadian Dollar) performed best as the USD strengthened. The table below shows the best performing currencies since inception of the Currency ETCs on 12 November 2009 and also the past 12 months. Over the last 12 months, long versions of the higher yielding G-10 currency indices were in the top five performers such as the Australian Dollar and New Zealand Dollar.
Source: ETF Securities, Bloomberg, Returns are in USD to 15 January 2010 from 16 Janary 2009 (1yr)
MSFX Currency Indices since inception MSFX Currency Indices over the past 12 months Short EURO Index TR 3.5% Long Australian Dollar Index TR 43.6% Short Swedish Krona Index 2.9% Long New Zealand Dollar Index TR 38.3% Long Canadian Dollar Index TR 1.9% Long Norwegian Index TR 27.3% Short Sterling Index TR 1.5% Long Swiss Franc Index TR 21.0% Short Swiss Franc Index TR 1.1% Long Swedish Krona Index TR 17.0%
The first 18 Currency ETCs were listed on the LSE on the 12th November and track MSFX Currency IndicesSM. Since inception, the Currency ETCs have rapidly generated interest with eight liquidity providers signing up and four Multilateral Trading Facilities (MTFs) to provide investors access to these new securities.
The 18 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 FX movements. For example the implied interest rate incorporated into the MSFX Long Australian Dollar IndexSM averaged approximately 5% p.a. over the past five years.
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. The average daily turnover of the global FX market is about $3.2 trillion which compares to the average daily turnover of $450 billion for global equities, $48 billion for the New York Stock Exchange and $6 billion for the London Stock Exchange. Thus currencies are much more liquid than equities.
ETF Securities launched the Currency ETC platform due to investor demand for secure, transparent and liquid exchange traded products. Currency ETCs are fully backed* by eligible collateral to the value of at least 100% of the total value of all Currency ETCs outstanding which is held in a segregated custody account with BNY Mellon. The collateral is adjusted daily to ensure credit risk is minimised. Currency ETCs are backed by the same eligible collateral criteria as ETF Securities’ existing Commodity ETCs. With ETF Securities’ Commodity ETC assets having grown by approximately 150% in 2009 to over $16 billion and volumes having doubled to around $1 billion per week, it is clear that investors have widely accepted the ETC structure as a secure vehicle of choice for exposure to commodities. As a result, the ETC product structure has been replicated to include currencies.
