Four New Currency ETFs from Rydex

In my article of last week, I mentioned the only way to buy Hong Kong dollars was through Barclays Asian and Gulf Currency Revaluation ETN (PGD) .  With this fund, in addition to the Hong Kong dollar,  you pick up the Saudi Arabian riyal,  the United Arab Emirates dirham, the Singaporean dollar and the Chinese yuan.  This is not a good solution if you are looking for a single currency - but it's an interesting ETN in its own right.

In early  May of this year Rydex filed a petition and the S-1 forms with the SEC for four new currency ETFs.  One was for the Hong Kong dollar, but there has been no announcement since then.  Making a couple of calls to official sources, I expected to get   ”can't comment” answers.  Until the filing clears registration, the sponsors are kept in a cone of silence, so to speak.  But, there were two exceptions--one official and one not. 

The press relations person at Rydex was more forthcoming than I had expected.  She said that early fall would be very possible as a date for the  introduction of their new ETFs.  More importantly, she informed me that just because filings had been made, it did not mean that all of the products would be introduced at that time.  On further questioning she said that they are demand based products, and that there is some concern within Rydex that the Hong Kong dollar may not have a strong enough demand because of its dollar peg.

Making further inquiries, I made contact with a  person not with Rydex, but one who was closely involved in the process of bringing the new offerings to market.  Speaking unofficially and off the record, he said they should be ready within a couple of weeks.  He made no mention of Hong Kong being delayed.  I should point out that another person with this same firm had stated earlier that these products would be out within a few weeks, and that was said in July.  Apparently, this is an optimistic firm.  Probably late September or October would be more likely, but I hope  it's earlier.

So, we don't know exactly what will be offered or when, but what I did find is still good news for currency investors.  If all four are brought to market, there will be one that is not offered by any other sponsor, and three that are available but only through bundled ETNs or Wisdom Tree's ETF. 

The four new funds will be of the traditional and straight forward Rydex format:  a trust arrangement that pools its currency deposits for each target country.  They will pay interest monthly, as all the other Rydex currency products do, and the interest rate will reflect local interest rates as closely as a London based bank can make them, less 45 basis points.

The currencies are:

• Russian ruble
• South African rand
• Hong Kong dollar
• Singapore dollar

The ruble will be a new entrant to the exchange traded world, and one of major importance in world trade.  Over 80% of Russia's exports are in oil, gas, timber and minerals--mostly to the European market.  By some estimates, Russia may hold up to 50% of the world's petroleum reserves.  It will be a major player in world trade for a long time.  High interest rates make it tempting as a carry trade target, but there is its volatility to contend with.

The South African rand is currently available from Wisdom Tree, but in an annual dividend payout.  The nation is also commodity dependent for its exports, and is a leading producer of diamonds, gold and other metals.  Its current interest rate is over 10%, so it is a target for the carry trade.

Hong Kong is an odd duck in the world of semi-nations--controlled by China, after a 100-year hiatus as a British colony.  It has a much better developed financial and legal system than its mother country.  Its history as a gateway to China is still honored, and it is more a service oriented economy than manufacturing.  It hosts excellent stock exchanges, big banks and many other financial and shipping services.  It follows a fairly tight peg to the U.S. dollar.  I hope Rydex brings it out soon, but it doesn't look strong as a prospect for now.

Singapore is more of a service economy, in the pattern of Hong Kong.  And, it has a looser peg to the U.S. dollar than Hong Kong.  It is more or less following the developments in China, and while not a vassal state,  its GDP is highly influenced by events in its giant neighbor.  Some have used its currency as a proxy for the yuan,  since the yuan is not allowed to freely trade.  The Chinese are still learning how to become a market economy, and their financial and market institutions are far from as mature as Singapore and Hong Kong.

These are welcome additions to our investing options.  I would like to see Rydex expand its options for currency trading by bringing out some bundles of currencies.  They could start with a fund of funds approach, bundling some or all of their current ETFs.  They are the leaders in this new field, and I hope they continue their heritage of bringing innovative currency products to the market.  

Comments

[Ray Hendon:]

I received an email from a Rydex representative today that the expense ratio of their currency ETFs is .4%, and they though the 45 bp I mentioned as the bank spread on interest earned vs. what is paid was an allusion to the ER. So, just to be clear. The ER is .4%, and the interest spread from earned to paid is .45%.

2008 Aug 25 02:34 PM

[granger:]

Good stuff, thank you.

2008 Aug 28 05:56 AM

[Ellen:]

What ever happened to the Singapore Dollar ETN. Did it ever come out?

2008 Dec 01 05:10 PM