As European nations begin to regain control of their economies, many investors who avoided the short-term effects of the recession are now left looking for a way to recoup their loses, even with slowly developing market growth. Currency ETFs offer a direct route to the health of a country, with three Guggenheim funds creating an effective picture of the past five years in European markets: CurrencyShares Euro Currency Trust (FXE, A), the British Pound Sterling Trust (FXB, A-) and the Swiss Franc Trust (FXF, B+).
Currency ETFs attempt to replicate the movements of a currency on the foreign exchange market against a basket or single currency and can be a great holding for investors who are well versed in the political and economic landscape of the country. Those looking to break into the European markets should take time to make sure the ETF they invest in has strong inflows [see also How To Pick The Right ETF Every Time].
Meet the Competitors
FXE, FXB and FXF are the three largest single currency European funds, holding between $100 million and $315 million in total assets under management each. Each of these Guggenheim funds measures the foreign exchange spot rate to the U.S. dollar of their chosen currency, and these funds have been on the market since 2006 [try our Free ETF Head-To-Head Comparison Tool].
The Bottom Line
Europe ETFs have, generally speaking, been hammered over the past several years, with currency trends effectively highlighting which years countries were hit the hardest. The euro fund has not seen strong inflows since the beginning of the crisis, with 2013 finally providing strong returns. The United Kingdom has also fallen on hard times, neither significantly attracting or losing investors over the last five years. FXF, however, has not had a consistent year, volleying between strong inflows and outflows each year. The most important point illustrated here is that currencies can be extremely volatile due to high speculation and sensitivity to news; as such, investors should closely monitor global news, both scheduled and unscheduled, to stay on top of short- and long-term events that can shape future trends.
Follow me on Twitter @lynpaintzall
[For more ETF analysis, make sure to sign up for our free ETF newsletter]
Disclosure: No positions at time of writing.