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In registration with the US Securities
& Exchange Commission will be the first "pure" currency play,
as Rydex Investments is the Euro Currency Trust. If approved, it will trade
under the symbol FXE.
FXE will be structured as a grantor
trust. The creation units will consist of 100,000 shares, each representing
€40, for a total of €4 million. That would put the value of
each individual share at $50, based on a conversion rate of EUR=$1.25.
According to a report published by Exchange
Traded Fund Report, "Rydex ETF
represents just a first step, and a baby-step at that, into the currency
markets. It is just one currency, although a major one, and it is unclear
whether shares will be available for shorting by retail investors who
believe that the Euro will decline against the US dollar. The registration
statement makes no mention of the possibility of an inverse Euro ETF, which
would address that issue."
That's a big deal since retail
investors have had a difficult time shorting most ETFs
should they so desire. (Please review, "Retail Investors Get the Short
Shaft") And, what is the purpose of
having FXE in your portfolio if you can only be "long" or not a
participant? Doesn't it exist for hedging non-dollar denominated assets?
Will that not be a benefit available to retail investors? Or, is it just
being issued so that institutional investors can play while retail is
excluded again?
Sure, I can hear the issuer, sponsor
and exchange all saying the same thing: "It's a stock lending problem
of the retail investors' brokerage company". Right. But, you won't
find any of these insiders assisting retail in realizing this feature. Why?
Because they don't have a monetary incentive to assist retail since they
only earn more fee income when new shares are issued, not
from shares already in circulation. They'll just issue the ETF and walk
away. Or, since the AMEX is now commencing options trading for various new ETFs, they'll steer retail investors to those markets
which are more lucrative to them and riskier for investors.
To be fair, Rydex
is a firm that has been a leader in issuing "inverse" index-based
mutual funds (these funds profit by declining index prices). Given that,
perhaps they'll be more sensitive to that need and want to profit by
sponsoring an "inverse" series. Until there is at least mention
of that intention, it's clear that retail investors will be left watching
the big boys enjoy and profit while they get the short end of the stick.
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