Less than a month after it announced negative interest rates, the Swiss National Bank shocked global markets by announcing it will scuttle the franc’s euro peg and the impact is being felt across the exchange traded funds landscape Thursday.
SNB’s decision to scrap the franc’s euro peg sent the Swiss currency surging, so much so that the CurrencyShares Swiss Franc Trust (NYSEArca: FXF) is easily Thursday’s top performing non-leveraged ETF with a gain of over 12% on volume that has already reached nearly 20 times the trailing three-month daily average.
Putting FXF’s move into context, the ETF entered Thursday down 2.5% since the start of the year and Thursday’s surge by the franc has more than wiped out FXF’s 10.3% two-year loss. Additionally, it is extremely rare that a currency ETF, particularly of the non-leveraged variety, to be a day’s leading on a percentage basis. FXF’s 12%-plus gain today is more than double that of the day’s second-best ETF, the Sprott Gold Miners ETF (NYSEArca: SGDM).
The dollar is down 11.4% against the franc at 0.9028 while EUR/CHF is lower by 13.1% at 1.0430.
SNB’s decision sent Swiss stocks plunging during the European session with the benchmark Swiss Market Index (SMI) sliding 8.6%.
At one point, $100 billion had been wiped off the value of Swiss blue chips, putting the normally docile market on pace for its one-day slide in 25 years, according to Reuters.
“The SNB’s shock decision to discontinue the cap against the euro that it introduced on Sept. 6, 2011 to fight recession and deflation pressures sent the Swiss franc soaring by almost 30 percent,” Reuters reported.
With the SMI rebounding off its lows, the iShares MSCI Switzerland Capped ETF (NYSEArca: EWL), the largest U.S.-listed Switzerland ETF, is higher by 2.3% on volume that has already nearly 10% above the daily average. The $976.4 million EWL allocates a massive percentage of its weight to Swiss blue chips Nestle (OTC: NSRGY), Novartis (NYSE: NVS) and Roche. Those stocks combine for 45% of the ETF’s weight. Novartis and Roche combine for 11% of the iShares Global Healthcare ETF (NYSEArca: IXJ), which is trading modestly higher today.
The First Trust Switzerland AlphaDEX Fund (NYSEArca: FSZ), a smart beta spin on Switzerland ETFs, is up 3.6% to its highest levels since the start of December. Proving that SNB’s decision has a broader ranging impact on U.S. ETFs, the First Trust Dorsey Wright International Focus 5 ETF (NasdaqGM: IFV), the international answer to the already popular First Trust Dorsey Wright Focus 5 Fund (NasdaqGM: FV), is trading slightly higher today because FSZ accounts for 20% of IFV’s weight. [Small Rally for Swiss ETFs after move to Negative Rates]
And there is gold. In November, Swiss voters rejected a plan to boost SNB’s gold reserves to 20% from 7% and the country dropped the gold standard in 1999, but some traders still perceive gold and the franc as having strong ties. [A Strong Franc Hampers Swiss ETFs]
Of the five ETFs closest to FXF in terms of intraday performance today, four, including SGDM, are gold miners funds. The SPDR Gold Shares (NYSEArca: GLD) is up nearly 3% today on volume that has already topped the daily average despite having a five-year correlation to FXF of just 0.386, according to State Street data.
CurrencyShares Swiss Franc Trust
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD.