With headlines that are tied to matters in Europe pervading the daily routines of institutional portfolio managers, currency ETFs have grown tremendously over the past year or so in terms of asset levels, average daily trading volumes, and even level of recognition of ticker symbols.
While not a member of the Eurozone, CurrencyShares British Pound Sterling (NYSEArca: FXB) is just one example of an ETF that delivers exposure to spot currency moves, and can be used for hedging purposes if not outright speculation by managers whom are looking for long or short exposure to the currency.
FXB is designed to provide the investor with exposure to the GBP/USD currency exchange rate, and like most currency based ETFs, utilizes futures contracts to achieve these objectives.
Year to date, FXB has out-performed the Euro, as measured by CurrencyShares Euro (NYSEArca: FXE), up 0.08% versus FXE’s decline of 3.56%. PowerShares U.S. Dollar Index Bullish (NYSEArca: UUP) is up 1.11% year to date.
In the trailing one year period, FXB has fared considerably better than FXE as well, down only 2.73% versus FXE’s return of -12.02%. Meanwhile, UUP has rallied 5.08% during this time frame.
FXB only trades about 30,000 shares daily, but based on the nature of the underling index in being linked to the British Pound, sizable trades from a notional dollar standpoint can be executed on either side of the market with mitigated price impact. FXB, along with other Currency based ETPs, may be an effective way to hedge specific exposures (equity or otherwise) and mitigate continental political or headline risk that may negatively impact portfolios.
CurrencyShares British Pound Sterling