Filling in what had become one of the most glaring holes in the ETF lineup, ProShares last week introduced a product that will allow investors to bet against the beleaguered currency of the Euro zone. The new ProShares Short Euro (EUFX) will seek to deliver daily returns that correspond to -100% of the daily change in the U.S. dollar value of the euro (specifically, the 4:00 ET EUR/USD cross rate as published by Bloomberg). Somewhat surprisingly, EUFX is the first exchange-traded product available to U.S. investors that seeks to accomplish that objective, giving those with a strong opinion on the outlook of the currency a tool for betting on a decline.
EUFX has already attracted the attention of investors looking to hedge euro exposure or simply bet against a decline in value; more than 18,000 shares traded hands yesterday, and the daily volume has gone as high as 42,000 shares in the first week of trading [see the Euro Free Europe ETFdb Portfolio with a free 7-day trial of ETFdb Pro].
EUFX will join a -2x leveraged ETF from ProShares that has seen a surge in interest in recent years. ”Concerns over Europe have driven nearly $1 billion of assets into our -2x euro ETF, EUO, since its launch less than four years ago,” said Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, ProShares’ investment advisor. “We are launching EUFX in response to investor requests for an additional variation of an ETF with inverse exposure to the euro.”
ETFs To Bet (Hedge) Against The Euro
Though EUFX becomes the first -1x Euro ETF, there are a handful of products that can be used to hedge against the struggling currency. As mentioned above, ProShares already offers an ETF (EUO) that delivers -2x daily exposure to the euro. PowerShares additionally offers a USD Index Bullish (UUP) that seeks to replicate being long the U.S. dollar relative to a basket of developed market currencies, including the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. Because the Euro represents a significant portion of the underlying basket, UUP often depends primarily on that currency.
One indirect way to hedge against a decline in the euro is the MSCI EAFE Currency Hedged Equity Fund (DBEF), which offers exposure to a basket of developed market stocks that includes a number of European economies. Unlike funds such as EFA or VEA, however, DBEF strips out the exchange rate exposure, meaning that a decline in the value of the euro won’t have an adverse impact on U.S. investors.
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Disclosure: No positions at time of writing.