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A Short Europe ETF to Hedge Further Swings


Investors who want to hedge against another volatile event in Europe could take a look at short, or inverse, Europe-related exchange traded funds.

For instance, after the weekend breakdown in negotiations between the Greek government and creditors put the country closer to a default and exit from the Eurozone, the ProShares UltraShort FTSE Europe (EPV) , which tracks the -2x or -200% daily performance of the FTSE Developed Europe Index, surged 6.8% on Monday.

Meanwhile, the Vanguard FTSE Europe ETF (VGK) , which tracks the FTSE Developed Europe Index, fell 3.5% Monday.

Eurozone stocks experienced their worst one-day decline since 2011 on Monday after Greece shut its banks and imposed capital controls to limit a run on banks, Reuters reported.

On Tuesday, the European Central Bank’s bailout program for Greece will end, but Greece is still holding a July 5 referendum to vote on whether or not the country will approve or reject terms set by creditors, CBC reports.

Additionally, the International Monetary Fund payment of 1.2 billion euros is due on Tuesday as well. A Greek official has stated that the country would not pay it back by the deadline.

Meanwhile, the euro currency slightly strengthened against the U.S. dollar Monday, reversing early day losses. Peter Kinsella at Commerzbank argues that the currency markets have already adjusted to Greece expectations accordingly, so the Greek decision didn’t affect the euro outlook too much, reports Roger Blitz for the Financial Times.

Additionally, Ian Stannard at Morgan Stanley contends that foreign investors a buying into European equities with a currency hedge also supported the euro. When equities decline, hedges require adjustment, which means greater euro demand.

Nevertheless, ECB’s quantitative easing program and loose monetary policy remain the predominant theme. Currency traders who are looking to profit off any potential weakness in the EUR ahead can utilize inverse euro-currency ETF options as well. For example, the ProShares Short Euro (EUFX) provides 100% of the inverse or opposite return on the U.S. dollar price of the euro. The ProShares UltraShort Euro (EUO) provides 200% of the inverse return of the U.S. dollar price of the euro. Lastly, the Market Vectors Double Short Euro ETN (DRR) also provides a -200% exposure to the euro. Over the past week, EUFX rose 0.6%, EUO gained 1.2% and DRR increased 0.7%.

ProShares UltraShort FTSE Europe


For more information on the Eurozone, visit our Europe category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.