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3 ETFs To Fight Against Global Currency War

The world is heading towards a currency war as a number of countries are choosing loose monetary policies to stimulate the sagging growth and prevent deflationary pressures. This is in stark contrast to the U.S. Fed policy of tightening its stimulus program by wrapping up QE3. The diverging central bank policies have propelled the U.S. dollar to a nine-year high. While a weak currency might provide short-term economic boost to the countries engaging in currency devaluation, this might take a toll on global trade and capital flow in the long term. A Look to International Easing Action Several countries in recent months cut their interest rates or took other actions to boost growth in their economy. The first and foremost country is Japan, which unexpectedly expanded its bond buying plan to 80 trillion yen from 60-70 trillion yen per year and tripled the pace of purchasing stocks and property funds (REITs) in October. Further, the government of Japan recently approved a spending package of 3.5 trillion yen ($29.12 billion) to boost consumer spending and regional economic activity. In November, the People’s Bank of China surprised the global market with a cut in interest rate for the first time in more than two years. The central bank slashed the one-year lending rate by 40 bps to 5.6% and the deposit rate by 25 bps to 2.75%. Further, China’s central bank lowered the reserve requirement ratio by 50 bps to 19.5%, effective February 5. Other nations also followed suit this year. The Reserve Bank of India ( RBI ) cut interest rates by 25 bps to 7.75% first time in almost two years while Swiss Bank scrapped its three-year old currency cap against the euro, which was pegged at 1.20. Meanwhile, the Bank of Canada reduced interest rates by 0.25% to 0.75%, representing the first rate cut since April 2009. The Turkey central bank trimmed one-week repo rate by 50 bps to 7.75% while Peru reduced the benchmark interest rate by 25 bps to 3.25%. Egypt too lowered the deposit rates and lending rates by 50 bps to 8.75% and 9.75%, respectively. The Danish central bank cut its deposit rate thrice in two weeks to a negative 0.35% from a negative 0.20%. The European Central Bank (ECB) launched a bond-buying program, committing to pump €1.14 trillion ($1.16 trillion) into the sagging Euro zone economy over the next one and half years. It plans to buy €60 billion of government bonds, debt securities issued by European institutions and private sector bonds per month through September 2016. Singapore announced a surprise currency policy easing, wherein the Monetary Authority of Singapore reduced the slope of the appreciation of the Singapore dollar against a basket of currencies by a percentage point. The most recent move came from Reserve Bank of Australia, which lowered interest rates by 25 bps to a record low of 2.25%. This is the first rate cut in 18 months. Further, Russia slashed the one-week repo rate to 15% from 17%. With that being said, the U.S. dollar is surging and other currencies are slumping. And investors need to be cautious when looking to invest outside the U.S. This is because a strong dollar could wipe out the gains when repatriated in U.S. dollar terms, pushing the international investment into red even if the stocks perform well in the rising-dollar scenario. How to Play? With the advent of the currency hedged ETFs, it has become easy for investors to cope with this situation. This is especially true as these funds look to strip out currency exposure to a foreign economy via the use of currency forwards or other instruments that bet against the non-dollar currency while at the same time offers exposure to the stocks of the specified nation. While there are a number of ETFs targeting specific nations, we have highlighted three ETFs that provide broad international play or exposure to more than one country. Deutsche X-trackers MSCI All World ex U.S. Hedged Equity ETF (NYSEARCA: DBAW ) This fund offers exposure to the stocks in developed and emerging markets (excluding the U.S.) by tracking the MSCI ACWI ex USA U.S. Dollar Hedged Index while at the same time provides hedge against any fall in the currencies of the specified nation. In total, the fund holds a broad basket of more than 1,300 securities with none holding more than 1.46% share. However, it is skewed towards the financial sector with 26.9%, followed by consumer staples (13.2%) and consumer discretionary (11.3%) Among countries, Japan and United Kingdom take the top two spots with at least 14 share each while Switzerland, Germany and France round off the top five with single-digit exposure. The ETF has amassed $16.3 million in its asset base while trades in a light volume of 12,000 shares per day on average. Expense ratio came in at 0.40%. The fund is up 12.2% in the trailing one-year period. iShares Currency Hedged MSCI EAFE ETF (NYSEARCA: HEFA ) For a broad foreign market play without currency risks, investors could also consider HEFA which focuses on the EAFE region – Europe, Australasia, Far East – for exposure. This product follows the MSCI EAFE 100% Hedged to USD index and is basically a holding of the iShares MSCI EAFE ETF (NYSEARCA: EFA ) with currency hedged tacked on. Financials dominates the fund’s return with one-fourth share while consumer discretionary, industrials, consumer staples, and health care also get double-digit allocation. Top nations include Japan, United Kingdom and Switzerland, while France and Germany round out the top five for this well-diversified fund. The fund has AUM of $391.2 million and average daily volume of roughly 162,000 shares. It charges 39 bps in annual fees and expenses and has added 11.6% since its debut almost a year ago. Deutsche X-trackers MSCI Emerging Markets Hedged Equity ETF (NYSEARCA: DBEM ) This product tracks the MSCI EM U.S. Dollar Hedged Index, which provides exposure to the emerging equity market and hedges their currencies to the U.S. dollar. The fund holds 460 securities in its basket, which is widely spread out across each component with none holding more than 3.86% of assets. Chinese firms takes the top spot at 22.5% while South Korea, Taiwan and Brazil round off the next three spots. From a sector look, financials accounts for the largest share at 28.6% closely followed by information technology (13.8%), telecom services (11.1%) and consumer staples (10.6%). The fund has managed $103.2 million in its asset base while trades in good average daily volume of around 162,000 shares. It charges 65 bps in fees per year and has returned 10.4% over the past one year. Bottom Line The popularity for currency hedging strategies has been on the rise on a strengthening U.S. dollar and the prospect of higher interest rates in the U.S. against lower interest rates in other countries. These products are expected to perform better than the traditional funds in the coming months thanks to the global currency war.

Complete List Of 79 ETP Closures For 2014

Seventy-nine exchange traded products bit the dust in 2014, marking the second highest annual death toll in the history of the ETF industry. The 72 ETF and 7 ETN closures were second only to the 102 closures of 2012. Broken down by major categories, the closures of 2014 consisted of 22 sector, 15 style and strategy, 14 global and international, 13 bond, 7 inverse, 4 leveraged, and 4 commodity. Of the 2,121 U.S. ETPs launched since the dawn of the industry in 1993, only 1,662 remain listed while 459 have closed. Said another way, the historic probability of ETP survivability is 78.4%. Closures affected 15 brands and sponsors in 2014. Pax World was the only sponsor to exit the ETF space completely, and it did so in a very strange fashion. ETF pundits have long discussed the possibility of a large quantity of mutual funds converting to ETFs. However, no one ever thought conversions might go the other direction, but that is exactly what happened when all $64 million of the assets in the Pax MSCI EAFE ESG Index ETF (NYSEARCA: EAPS ) suddenly became Institutional Class shares of the Pax World International ESG Index Fund (MUTF: PXNIX ), a traditional mutual fund. See ‘ This Wasn’t Supposed To Happen: ETF Converts To Mutual Fund ‘ for additional details. Goldman Sachs is highly regarded on Wall Street, and it is often thought of as a firm that can do no wrong when it comes to making money. However, it hasn’t figured out the ETF space yet. Goldman (NYSE: GS ) attached its name and investment strategies to four ETFs sponsored by ALPS in 2012. Apparently, the Goldman name carries no weight in ETF land , and all four ETFs closed in 2014 with combined assets of less than $11 million. For a number of reasons, the most notable closures of the year belong to iShares. First, 29 iShares ETFs had their last day of listed trading in 2014, giving iShares a 37% market share of closures. No other brands came close to this figure, with Direxion and EGShares tying for second-place “honors” with just six closures each. Second, iShares raised the bar on ETF survivability , as its 18 closings in October averaged more than $18 million in assets and two had about $70 million each. At the time, 49% of all listed ETFs and ETNs had fewer assets. Third, two of the liquidated funds (NY and NYC) had been on the market more than ten years. Longevity does not assure survival. Last, I can recall a BlackRock (NYSE: BLK ) representative questioning why there were iShares funds on ETF Deathwatch when none had ever closed. I reminded him that iShares practically invented ETF closures with three such occurrences in 2002. He rebutted that Barclays owned the iShares brand at that time, and BlackRock had never closed an ETF. Never say never. Some ETPs have maturation dates, namely target-date maturity bond ETFs and all ETNs. At their time of launch, these products inform investors of their likely closure and liquidation dates. For example, the Guggenheim BulletShares series of target maturity bond ETFs retire a couple of funds at the end of each calendar year. The two 2014 BulletShares ETFs (BSCE and BSJE) had their last day of trading on December 30, and next year we can expect the 2015 funds (BSCF and BSJF) to do the same. These are planned from the time of inception and are not indicative of unhealthy or failing products. Every ETN is also issued with a maturity date. Typically, ETNs are launched with 30-year or 20-year maturities. Since the first ETNs didn’t come to market until 2006, most investors thought they wouldn’t have to deal with ETN maturation for another 10 or 20 years. However, in 2009 there were five ETNs issued as 5-year notes scheduled to mature in 2014. Three of these five triggered early terminations, including Barclays ETN+ S&P 500 Short B ETN (NYSEARCA: BXDB ) last April. The two that escaped early termination, BXUC and BXUB, matured in November and were liquidated. Most of 2014’s closures had become Zombie ETFs, and 58 of the 79 (73%) were on ETF Deathwatch at the time of their closure announcements. The major exceptions included the maturing products discussed above and many of the iShares with large amounts of assets. The average age of funds that closed in 2014 was 45.8 months (3.8 years). This is greater than the 31.4-month average lifespan of all 459 closed products, suggesting sponsors are willing to subsidize these non-profitable products longer than in years past. The table below is currently sorted by product name. # Ticker Name Last Day Deathwatch Notes 1 GSAX ALPS/GS Momentum Builder Asia x-Japan Eq/US-T 08/27/2014 Yes 2 GSGO ALPS/GS Momentum Builder Growth Markets Eq/US-T 08/27/2014 Yes 3 GSMA ALPS/GS Momentum Builder Multi-Asset 08/27/2014 Yes 4 GSRA ALPS/GS Risk-Adjusted Return U.S. Large Cap 08/27/2014 Yes 5 BXUB Barclays ETN+ S&P 500 Long B Leveraged ETN 11/20/2014 Yes 2 6 BXUC Barclays ETN+ S&P 500 Long C Leveraged ETN 11/20/2014 – 2 7 BXDB Barclays ETN+ S&P 500 Short B Leveraged ETN 04/10/2014 Yes 3 8 BRZS Direxion Daily Brazil Bear 3x Shares 09/23/2014 Yes 9 EURZ Direxion Daily FTSE Europe Bear 3x Shares 09/23/2014 Yes 4 10 BARS Direxion Daily Gold Bear 3x Shares 12/26/2014 Yes 4 11 JPNS Direxion Daily Japan Bear 3x Shares 09/23/2014 Yes 12 GASX Direxion Daily Natural Gas Related Bear 3x 09/23/2014 – 13 KORZ Direxion Daily South Korea Bear 3x Shares 09/23/2014 Yes 14 CHXX EGShares China Infrastructure 09/29/2014 Yes 15 EMDG EGShares Emerging Markets Dividend Growth 12/24/2014 Yes 16 EMHD EGShares Emerging Markets Dividend High Income 12/24/2014 Yes 17 IEMF EGShares TCW EM Intermediate Term IG Bond 09/29/2014 Yes 4 18 LEMF EGShares TCW EM Long Term IG Bond 09/29/2014 Yes 4 19 SEMF EGShares TCW EM Short Term IG Bond 09/29/2014 Yes 4 20 OFF ETRACS Fisher-Gartman Risk Off ETN 05/18/2014 Yes 21 ONN ETRACS Fisher-Gartman Risk On ETN 05/18/2014 Yes 22 GASZ ETRACS Natural Gas Futures Contango ETN 01/22/2014 – 23 OILZ ETRACS Oil Futures Contango ETN 01/22/2014 Yes 24 CNPF Global X Canada Preferred 10/16/2014 Yes 25 GGGG Global X Pure Gold Miners 10/16/2014 Yes 26 BSCE Guggenheim BulletShares 2014 Corp Bond 12/30/2014 – 2 27 BSJE Guggenheim BulletShares 2014 HY Corp Bond 12/30/2014 – 2 28 GIY Guggenheim Enhanced Core Bond 03/07/2014 Yes 1 29 MUAC iShares 2014 AMT-Free Muni Term 08/15/2014 – 2 30 NUCL iShares Global Nuclear Energy 10/14/2014 Yes 31 FNIO iShares Industrial/Office Real Estate Capped 10/14/2014 Yes 32 AXDI iShares MSCI ACWI ex US Consumer Discretionary 03/25/2014 Yes 33 AXSL iShares MSCI ACWI ex US Consumer Staples 03/25/2014 Yes 34 AXEN iShares MSCI ACWI ex US Energy 03/25/2014 Yes 35 AXFN iShares MSCI ACWI ex US Financials 03/25/2014 Yes 36 AXHE iShares MSCI ACWI ex US Healthcare 03/25/2014 Yes 37 AXID iShares MSCI ACWI ex US Industrials 03/25/2014 Yes 38 AXIT iShares MSCI ACWI ex US Information Technology 03/25/2014 Yes 39 AXMT iShares MSCI ACWI ex US Materials 03/25/2014 Yes 40 AXTE iShares MSCI ACWI ex US Telecom Services 03/25/2014 Yes 41 AXUT iShares MSCI ACWI ex US Utilities 03/25/2014 Yes 42 EMFN iShares MSCI Emerging Markets Financials 10/14/2014 Yes 43 EMMT iShares MSCI Emerging Markets Materials 10/14/2014 Yes 44 FEFN iShares MSCI Far East Financials 10/14/2014 Yes 45 NY iShares NYSE 100 ETF 10/14/2014 – 46 NYC iShares NYSE Composite ETF 10/14/2014 – 47 RTL iShares Retail Real Estate Capped 10/14/2014 Yes 48 TZD iShares Target Date 2010 10/14/2014 – 49 TZE iShares Target Date 2015 10/14/2014 – 50 TZG iShares Target Date 2020 10/14/2014 – 51 TZI iShares Target Date 2025 10/14/2014 – 52 TZL iShares Target Date 2030 10/14/2014 – 53 TZO iShares Target Date 2035 10/14/2014 – 54 TZV iShares Target Date 2040 10/14/2014 – 55 TZW iShares Target Date 2045 10/14/2014 Yes 56 TZY iShares Target Date 2050 10/14/2014 – 57 TGR iShares Target Date Retirement Income 10/14/2014 – 58 RKH Market Vectors Bank and Brokerage 12/12/2014 Yes 59 COLX Market Vectors Colombia 12/12/2014 Yes 60 GERJ Market Vectors Germany Small-Cap 12/12/2014 Yes 61 LATM Market Vectors Latin America Small-Cap 12/12/2014 Yes 62 CHLC Market Vectors Renminbi Bond 12/12/2014 Yes 63 EAPS Pax MSCI EAFE ESG Index ETF 03/21/2014 – 5 64 AUD PIMCO Australia Bond Index 09/26/2014 – 65 TRSY PIMCO Broad U.S. Treasury Index 03/10/2014 Yes 66 BABZ PIMCO Build America Bond 09/26/2014 – 1 67 CAD PIMCO Canada Bond Index 09/26/2014 – 68 BUND PIMCO Germany Bond Index 09/26/2014 Yes 69 PIQ PowerShares Dynamic Magniquant 02/18/2014 Yes 70 KBWX PowerShares KBW International Financial 02/18/2014 Yes 71 PXN PowerShares Lux Nanotech 02/18/2014 Yes 72 PMNA PowerShares MENA Frontier Countries 02/18/2014 Yes 73 GEMS PureFunds ISE Diamonds/Gemstone 01/23/2014 Yes 74 MSXX PureFunds ISE Mining Service 01/23/2014 Yes 75 NAGS Teucrium Natural Gas 12/18/2014 Yes 76 CRUD Teucrium WTI Crude Oil 12/18/2014 Yes 77 ASDR VelocityShares Emerging Asia DR ETF 11/20/2014 Yes 78 EMDR VelocityShares Emerging Markets DR ETF 11/20/2014 Yes 79 RUDR VelocityShares Russia DR ETF 11/20/2014 Yes Notes: 1) actively managed, 2) reached planned maturity, 3) hit early termination trigger, 4) launched in 2014 and less than 1 year old at time of closure, 5) converted to mutual fund. All exchange traded notes are identified with “ETN” as part of their name description. Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.