The CurrencyShares Euro Currency Trust (FXE) launched in December 2005, while the other funds debuted in June 2006. So far, they’ve pulled in $1.1 billion in assets, with the bulk of that flowing into the euro fund.
Anyone familiar with the forex market must be wondering why Rydex is only getting around to the Japanese Yen fund today. The Yen is the second most popular currency in the massive foreign exchange market, and is involved in around $375 billion in notional trading value each day, according to the prospectus. It is also a key component of the popular New York Board of Trade U.S. Dollar Index, which forms the basis for a huge chunk of global forex trading. Compared to the Yen, the Swedish Krona is … well, did you even know that they called it a Krona?
In earlier interviews with Rydex, the company said that the Japanese Yen product was delayed because of low interest rates in Japan. All of the CurrencyShares charge 40 basis points in expenses, and the seven existing funds pay that out of interest earned on deposits. But Japanese interest rates are so low – they have crept up from zero to 24.6 basis points – that they will not generate enough income to cover the 40 basis point expense ratio. As a result, the fund will be forced to sell assets to cover costs, in much the same way that the gold bullion ETFs sells gold to cover its cost. One quirk of this unfortunate situation is that the fund will convert Yen to U.S. dollars in order to pay these expenses; when it does, any gain or loss on that conversion will be a taxable event for shareholders.
The fund will trade on the New York Stock Exchange under the ticker symbol “FXY.” The Bank of New York is the trustee, and the funds will be deposited at the JPMorgan Chase Bank of London. The prospectus is available here.