Foreign Currency ETFs: A Comparison

These new ETFs have been trading long enough to see how they are faring in the market. I have prepared a table (below) which shows the basic data.

At this time, only FXE and DBV have enough trading volume to be really liquid. FXF could be traded with careful use of limit orders. The rest are languishing. All of these ETFs except DBV are the synthetic equivalent of owning the currency in a foreign money market account. For example, one share of FXE is equivalent to a deposit of 100 Euros.

DBV is different from the others. It is a synthetic carry trade. They buy the three highest-yielding currencies and sell short the three lowest-yielding. While this strategy can be an effective means of generating profits, I am not at all sure that DBV’s price movements will show a negative correlation to the U.S. Dollar; in fact, there may be a positive correlation.

FXE is clearly the best choice for a low cost, exchange-traded hedge against a weakening dollar. Click to enlarge:

Editor's note: For a full listing of currency ETFs and helpful links, see Currency ETFs and ETNs.