- ETFS Short GBP Long USD (SGBP) rose 5.1% in February as investors' turn their focus on weak UK fundamentals
- Turnover on ETF Securities' currency ETC platform surged 173% in February to a record high with ETFS Short EUR Long USD (SEUR) and ETFS Short GBP Long USD (SGBP) making up 60% of trading
- Long USD and short G10 Currency ETCs have seen the strongest interest, capturing 81% of total AUM
- Currencies have outperformed equities* over 3 years, with AUD outperforming by 46.5%
- Currency ETCs provide investors with an easy way to implement both
long and short currency views in a convenient exchange traded product
Turnover on ETF Securities' Currency ETC platform surged 173% in February to a record high as investors use Europe's first Currency ETCs to implement long and short tactical and strategic currency views. As the European sovereign debt crisis spread over the past two months, investors have focused on taking short positions in EUR and GBP vs. USD, with ETFS Short EUR Long USD (SEUR) and ETFS Short GBP Long USD (SGBP) making up 60% of trading volumes and 35% of AUM. As a result of credit concerns amongst various EU member countries and a worsening outlook for the UK economy, both the EUR and GBP have been the worst performing G-10 currencies versus USD in February and year to date.
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Currency ETCs that are long USD and short G10 currencies have seen the most interest from investors, making up 81% of total assets. ETFS Short EUR Long USD (SEUR) has been the most popular trade in 2010, capturing 73% of new assets, while the Australian dollar held the most net long positions. Currency as an asset class has also performed well relative to equities* with the MSFXSM Long Australian Dollar Index (TR) up 27.8% in the past three years, outperforming the S&P500 index by 46.5% over that period.
Currency ETCs provide long or short passive exposure to G10 currencies versus the US Dollar or the Euro, and also provide exposure to local interest rates in addition to FX movements. Currency ETCs are listed on the London Stock Exchange (LSE), and will be listed on the Deutsche Borse (Xetra) this week. 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.
Currency ETCs are backed by eligible collateral to the value of at
least 100%** of the total value of all Currency ETCs outstanding and which
is held in a segregated custody account by 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 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 secure vehicle of
choice for exposure to commodities. As a result, this is now been extended
to include currencies.
"There has been a significant change in currency market sentiment over the past few months with sovereign risk starting to play a much more important role in driving FX performance. Concerns about Greece's sovereign debt and fiscal sustainability kicked off the crisis, but now it is spreading across other parts of Europe and across to the UK. With developed economy fiscal and debt positions likely to deteriorate into the foreseeable future, sovereign risk is likely to become a more permanent feature of the FX markets. Currency ETCs provide a convenient way to play these themes, providing both long and short exposures to a range of currencies. Some investors have been using ETCs to short "risk" currencies to hedge against a possible global risk asset correction, while others have been tactically shorting those currencies perceived more vulnerable. The bulk of trading and inflows on our currency ETC platform have been in Short EUR Long USD (SEUR) and ETFS Short GBP Long USD (SGBP) as GBP fell 5.1% and EUR fell 1.7% versus the USD in February."