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].
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.