Apparently the lava danger on the big island is ramping up (but this is an old photo). Relative to the lava zones this is no where close to our house but this is from Kalapana which is in easy driving distance and where the one picture I posted of the road being lava'd out is from.Any-who...I got an early call on Tuesday looking to interview me about the new filing from WisdomTree for currency ETFs. Yawhatnow?
WisdomTree has filed for the following;
- Australian Dollar Fund
- Brazilian Real Fund
- British Pound Fund
- Canadian Dollar Fund
- Chinese Yuan Fund
- Euro Fund
- Indian Rupee Fund
- Japanese Yen Fund
- New Zealand Dollar Fund
- South African Rand Fund
- South Korean Won Fund
- Developing Market Fund
Two big omissions, one more glaring than the other. I am surprised there is no Norwegian krone. Norway is a commodity based, surplus country which would make for good diversification versus the other funds filed. The other one I would have thought would be there is the Singapore dollar. The Sing dollar is viewed by some, like Jim Rogers and as written up in Barron's over the weekend, as being one of the world's soundest currencies.
I have a theory as to why they might be avoiding this which has to do with the Monetary Authority Singapore's (MAS), the central bank, management of the currency. Instead of lowering and raising interest rates, MAS will act in the currency markets in response to changes in the economy. This is different and perhaps is germane to whether or not an ETF is a good idea for their (here I mean WT) business.
While this is very interesting there does need to be a mention of how many funds WisdomTree has had in registration for ages that have not listed. According to page three of the IndexUniverse ETF Watch, WisdomTree has 25 other funds filed. To be fair some other providers have more long standing but unissued filings but I think the odds of all them listing is remote. Of course I hope they do all list.
I believe the utility of more foreign currency access, easily obtained, will become more important for US based investors over the next few years. This is also one of several potential areas that could allow for more sophisticated strategies to evolve or simply be available for retail investors.
Why couldn't someone with a generic target allocation of 70% stocks, 20% fixed income, 10% cash put 30-40% of their cash into several foreign currencies of their choosing?
I don't mean necessarily trading them but maybe blending together one surplus currency, one carry trade destination and maybe an emerging market currency to capture real diversification versus the US dollar.
This sort of approach doesn't require the investor to be that right. During times of crisis you might see surplus currencies do a little better than carry trade/deficit currencies. Owning one of each is diversification. It does not take too much skill to be aware that some commodity based country is at a different point in its economic cycle which is again diversification.
Analyzing currencies is not easy and is probably unfamiliar to a lot of folks but an argument can be made that there are fewer moving parts to currency analysis than single stock analysis.
If these funds come some folks will use them incorrectly and hurt themselves but that should not be your problem--at least hopefully not.
15 comments:
First thought when I read about these yesterday: "Whoa, that's awesome, I could put that to work."
2nd thought, about 1m later: "Well now wait, does this REALLY fit into my plan? Or does it make my plan more complicated?"
complicated is not good but at the same time portfolio management has and will continue to evolve.
hi, roger: would merkx, the merk (so-called) hard currency fund, fit into your thinking here and, if so, how so? i did a search here and see that in dec 2005 you had enough concerns about it to say you probably wouldn't be a buyer. in hindsight, it would have been a smooth move to just jump on in. have any new thoughts to add? thanks!
clearly anything that provided exposure to other currencies has done well since late 2005.
i have not looked at the fund i a while, at one point it was heavy in the euro which i was not favorably disposed to relative to other currencies.
I have since added FXE for many clients last fall on the belief that we are fundamentally closer to euro being more of a world reserve currency at the dollar's expense.
buying an actively managed fund is obviously buying someone else's opinion about where to be within the space. i can see at times where that would be a good thing and other times where it would not be good
On another subject, not to mean this sinking or should I say stinking market is not of interest. I read that much of the Dow has gone down over 20%, with 20% being the number for a bear market and that many stocks have been in a bear market already. What is your opinion on how much lower the indexes might go? I think of the bear market of the 1970's where a number like -45%, worse than 2001-2002. Is there some reason the markets will not go to those depths?
Ron,
My thought all along about this bear market is that it would be normal. Normal seems to be 25-30% down.
It looks like the closing high for SPX was 1565 on Oct 9. That implies a low between 1095 and 1173.
As far as cutting in half well of course it could but I think it is unlikely that the market would cut in half twice in the same decade.
It happened in the 1930s and then the 1970. I know there was calamity around 1907 but I do not know if the market quite cut in half then and I think there was a depression in the 1870 before that.
I am prepared to be wrong in either direction, at least I think I am, with my goal simply to be down less. This makes for discomfort in the short run but can add dramatically to life time returns which should be more important.
Roger,
I've always been a bit confused about the yuan. I've been more or less under the impression that it is restricted to China and doesn't trade freely in the world currency markets as most other currencies do. Is this incorrect? Can you (or anyone) clear this up? Thanks.
There are restrictions in terms of movement and, I believe, access but maybe someone can shed more specific light on the issue.
Roger,
I think of "time" as part of the bear equation, almost as much as peak to trough in points. Average bear is 6-12 months. Is time more likely to be compressed with speed of information these days, or is this a sign of more time to do more damage? Or, perhaps, the only thing that matters is taking some precautions to limit the downside. Then again, what's the point of overweight cash if it's not put to work earlier than latter as the mkt returns in an upward direction.
jasper
Jasper great question and I have a crappy answer!
I can make the argument for both longer and shorter. Your point about shorter is valid but a long time ago i theorized that our cycles, as a function of economic maturity and slower growth would be longer and the peaks and troughs would be shallower.
this was right for the expansion, I think, and we will see about contraction.
the other point is that if things are as terrible as the Roubinians say then that is another argument for longer.
as far as your comment about putting cash to work, I think of it more as buying when demand for stocks is healthy as opposed to when it is not healthy.
Am I incorrect or are some of Wisdom Tree's ETF proposals aborted before birth?
Variety is nice, but I think that in the currency arena many investors will be too smart by half, ignoring wonderful yields available in the U.S. without the hassle and enhanced speculative guessing.
if WT has scrapped any ideas that they previously filed or otherwise made public, i haven't heard.
Some of these would be good for long term holdings, but trying to trade them short term and leveraged could get your head handed to you.
diversification is good, what other forex fund do u suggest, any links will be appreaciated.
i don't suggest any. Rydex has ETFs, iPath has ETN, there are a couple from PowerShares and some OEFs.
I view currency as an asset class. not too many others in my end of the business do...yet?
I write about them to the extent I do to encourage people learn about the asset class.
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