In February of this year, bond fund titan PIMCO released its first actively managed currency ETF - the PIMCO Foreign Currency Strategy Exchange-Traded Fund (NYSEARCA:FORX). According to the company website, "FORX will primarily invest in currencies, currency forwards, or fixed income securities denominated in the currencies of foreign (non-U.S.) countries."
FORX will provide investors with the benefit of investing in a globally diversified pool of currencies in order to combat the effects of a falling U.S. dollar. In today's world of loose monetary policies, sky-high debt levels, and political uncertainty a fund such as FORX may provide a hedge against U.S. dollar devaluation. In addition, investors that utilize this fund will reap the benefits of PIMCO's decades of experience in the currency and bond markets.
Another benefit of owning an exchange-traded fund such as FORX is the transparency that is associated with its makeup. Actively managed funds are required to post their holdings every day on their website to give investors access to their positions on an almost real-time basis. As of 3/18/13 the top three holdings in FORX include: Canadian Dollar - CAD (15.11%), Norwegian Krone - NOK (14.92%), and Swedish Krona - SEK (9.98%).
FORX makes strategic currency allocations across both developed and emerging market countries which give it a balanced weighting around the world. The fund's managers seek to make tactical changes to the portfolio whenever they identify an opportunity that is undervalued in the marketplace.
Actively managed ETFs have gained notoriety as of late with the successful launch of the PIMCO Total Return Fund (NYSEARCA:BOND) in 2012. To-date this fund has garnered over $4 billion in total assets and continues to gain both awards and acceptance in the investment community.
It remains to be seen whether FORX will have the same level of success that BOND has enjoyed, however the fund deserves a look by investors who are seeking an actively managed currency play.
Foreign Currency Risks
The strength of the U.S. dollar index year-to-date (+3.75% as of this writing) has put pressure on foreign currencies around the globe. Most notably the Currency Shares British Pound Sterling Trust (NYSEARCA:FXB) and Currency Shares Japanese Yen Trust (NYSEARCA:FXY) have seen declines of 6.71% and 8.64% respectively this year.
This can be largely attributed to fears of European economic instability and money coming back into the U.S. dollar from foreign sources. In addition, we have seen large outflows from traditional anti-dollar plays such as the SPDR Gold Shares (NYSEARCA:GLD).
It's a good bet that this these money flows are a result of investors seeking to reposition their assets to reduce risk and ring the cash register on long-term gains from commodities or foreign currency bets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.