What are currency ETFs?
Investing in currency exposure is flexible and convenient with ETFs.
Currency ETFs aim to track the change in price of foreign currency relative to the Australia dollar, before expenses and fees.
For example, the USD U.S. Dollar ETF aims to track the change in value of the U.S. dollar ($US) relative to the Australian dollar ($A), (before fees and expenses). So, if the US$ goes up 10% against the A$ (i.e. the A$ falls in value), the ETF is designed to go up in value by 10% too (before fees and expenses). Conversely, the ETF can be expected to go down in value if the $US falls relative to the $A.
How to trade foreign currency with ETFs
Before currency ETFs were available, investing in currency was generally difficult for Australian investors because of the barriers to access the foreign exchange (FX) market to trade foreign currency.
An ETF provides investors with a more convenient and cost-effective way to gain exposure to foreign currency performance at rates that would otherwise only be available to the largest wholesale investors.
Currency ETFs can be bought and sold on the ASX during trading hours like shares, without the need to use complicated foreign currency trading platforms, trade CFDs or to open a foreign currency bank account.
Costs of investing in a currency ETF typically include a low management fee, as well as potential transaction costs and brokerage (just like when you trade any share on the ASX). For most investors, this will be much cheaper than alternative ways to get exposure to a foreign currency, such as using as a foreign bank account.
How do currency ETFs work?
Currency ETFs may provide exposure to the performance of a foreign currency by investing in cash/currency deposits, foreign exchange derivative contracts or short-term debt denominated in a currency.
In the case of Betashares currency ETFs, the assets of each ETF are invested in bank deposit accounts denominated in the relevant foreign currency.
Any interest earned on the deposits accrues to the benefit of the ETF and will be distributed to investors (if such interest exceeds the fees and expenses of the ETF).
Betashares currency ETF deposit accounts are primarily held with JP Morgan Chase Bank.
What are the advantages of investing in currency via Betashares currency ETFs?
- Accessible
- gain exposure to the performance of foreign currency as easily as buying any share on the ASX
- Convenient
- avoid the cost and complexity associated with accessing the FX markets through currency trading platforms, CFDs, currency brokers or opening a foreign currency bank account
- Flexible
- can be used to implement a range of investment strategies
- Low cost
- costs expected to be significantly lower than buying foreign currency directly from a bank or other financial institution for most investors
- Simple and secure structure
- Betashares currency ETFs hold actual foreign currency in bank deposit accounts
- Liquid
- the ETFs trade on ASX during trading hours
- Transparent
- the value of each ETF’s assets (including the wholesale FX rate used to value the foreign currency) is available daily on the Betashares website
- Eligible for SMSFs
- currency ETFs can be held by SMSFs (self-managed super funds)
What are the risks of currency ETFs?
The value of foreign currency has tended to fluctuate widely over the past several years relative to the Australian dollar.
Currency movements are influenced by economic, macro and political events.
Interest rates from central banks, slow global economic conditions or an unstable political environment are amongst the factors that would influence exchange rates.
There are other risks that apply. Investors should refer to the relevant ETF’s product disclosure statement for further information.
Why invest in currency ETFs?
Currency ETFs can be used to implement a number of different investing strategies: