Currency ETFs are relatively new on the market and are quickly gaining popularity as an alternative to forex. Forex itself is better referred to as gambling than investing. Trading platforms are untested and spreads are easily manipulated. With few restrictions in place, the majority of online brokers are still hesitant to provide this investing option to customers.
Still, dabbling in international currencies provides a reward greatly surpassing the risk. Thus, many investors are picking up currency ETFs in order to hedge the risks associated with forex.
Perhaps one of the newest in this category of ETFs is one that combines the draw of forex with the rising popularity of emerging market investing. The WisdomTree Dreyfus Emerging Currency Fund (CEW) was incepted May 6, 2009, overvalued with NAV $19.98 and actual share price $20.20.
There might be controversy as to how to interpret the fact that WisdomTree’s newest ETF emerged into the market trading at a premium of 1.10%. Since its inception, however, CEW has fallen more in line with comparable funds such as PowerShares DB G10 Currency Harvest Fund (DBV).
However, it is clear from the historical premium/discount data, that DBV is much more volatile and sees more rapid and extreme changes than the consistent growth that is expected from WisdomTree’s ETFs. Currently, these two funds are in line. Today CEW is trading at a premium of 0.33% and DBV is trading at a premium of 0.27%.
As NAV for this fund seems to be growing at a faster pace (6.51%) than the actual share price (5.89%), the premium will come closer to 0 and perhaps even trade at a discount. This would make CEW even more attractive to prospective buyers. As it stands the ETFs NAV is steadily increasing even as the market struggles. This is a good sign and provides an optimistic outlook for the fund.
The low administrative fees for ETFs relative to mutual funds are also appealing to investors. The expense ratio for CEW is a slim 0.55%.
Also, CEW’s investment objective depicts a respectfully diversified fund with the most liquid currencies from three broad geographical and economic regions. CEW includes in its holdings currencies from two of my favorite countries investmentwise, the Brazilian Real and South African Rand.
Though this currency ETF is new, leaving it without much historical data to fully support any predictions, I still feel confident in recommending this as a viable long-term holding. WisdomTree itself has a great history of consistent growth from within its ETF family and I wouldn’t expect anything less from this new fund.
Disclosure: No postitions
