Safe-Haven Currency ETFs Shine in Euro Crisis

May 24th at 9:20am by Tom Lydon

Currency exchange traded funds pegged to perceived safe havens such as the U.S. dollar and Japanese yen have rallied on fears Greece will leave the euro.

The Japanese yen, U.S. dollar and even Swiss franc are considered reliable currencies during times of global distress as these countries offer lower lending rates. Additionally, Japan and Switzerland have strong current accounts. Meanwhile, the greenback benefits from the strong demand in the U.S. Treasuries market.

Still, the Swiss franc has been weakened by the central bank setting a cap on how high it can appreciate versus the euro. The move is designed to protect Swiss exporters.

The U.S. dollar. Powershares DB US Dollar Bullish Fund ETF (NYSEArca: UUP) tries to reflect the movements of the U.S. dollar against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. UUP has  $1.1 billion in assets and an expense ratio of 0.75%. The fund is relatively unchanged year-to-date, but up 1.8% over the last month.

“For those betting on a general U.S. dollar appreciation, this fund provides a better tool than single-currency funds because it tracks the performance of the U.S. dollar against six foreign currencies,” Rawson said in a research note.

The dollar index strengthened to 81.2 from 81.163 late Friday, according to the Wall Street Journal. Additionally, the dollar index also finished a 14-day winning streak, the longest since at least 1985, Friday.

The Japanese yen. Guggenheim CurrencyShares Japanese Yen Trust ETF (NYSEArca: FXY) tracks the currency movement of the Japanese yen against the greenback. FXY has $198.5 million in assets and an expense ratio of 0.40%. The fund is down 2.8% year-to-date.

Japanese yen has recently appreciated as Eurozone concerns and the rate of U.S. growth pushed investors back into the Japanese currency, the Wall Street Journal reports. FXY is 2.7% higher over the past month.

The Swiss franc. Guggenheim CurrencyShares Swiss Franc Trust ETF (NYSEArca: FXF) tries to reflect the price movement of the Swiss franc to the U.S. dollar. FXF has $355.2 million in assets and an expense ratio of 0.40%. The fund is down 0.2% year-to-date.

“The franc is often seen as a safe-haven currency, but in normal times it has a 87% correlation to the euro and the country has an outsized economic exposure to the pained international finance sector,” according to Morningstar analyst Michael Rawson.

Last week, asset manager clients of UBS AG were selling euros at their largest levels since November 2011, reports 4-Traders. Sales of the euro against the franc was the third-highest on record.

“The biggest damage to the currency was done not [against the dollar] but against the [Swiss franc],” the bank said.

For more information on currency funds, visit our currency ETFs category.

Max Chen contributed to this article.

Read the disclaimer; Tom Lydon is a board member of the funds for Guggenheim Investments.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.