One of the most traded currencies in the world, the Japanese yen, has its importance in trading ETFs as well. ETFs investing primarily in yen backed assets make up the Yen ETFs. The performance of Yen ETFs is driven by the performance of yen against the dollar. Japan recently faced terrible natural disaster which disrupted its economy as well. The Japanese indexes and ETFs were down 10% in the same week of the earthquake hit. However recently the currency has shown remarkable strength against the dollar as the investors has started bringing assets back to Japan.
Currency investing is high stakes gambling that can lead to fortunes quickly and also make one go bankrupt but they can add valuable diversification to benefit the portfolio. As Japanese yen has experienced greater interest from the investors because of its excellent recoil, the Yen ETFs provide a good way to have exposure to the currency. The declines in the value of Yen ETFs have been offset by the strength of yen.
Some options for having exposure to Yen ETFs include:
- Rydex CurrencyShares Japanese Yen Trust (FXY): FXY is the largest ETF offering exposure to the yen currency. It has more than $450 million in assets with an expense ratio of 0.62%. it can be shorted to offer inverse exposure to the yen currency. It has holdings in 44 companies with top holdings in Goldman Sachs, Susquehanaa Intl, Morgan Stanley, JP Morgan and Timber Hill LLc.
- iPath JPY/USD Exchage Rate ETN (JYN): This product is structured as an ETN making it an unsecured debt instrument. It measures the relative values of yen and US dollar. It has a market capitalization of $8.25 million and was launched by Barclays Bank.
- Wisdom Tree Dreyfus Japanese Yen Fund (JYF): This is a true ETF with assets in different yen dominated securities. The ETF is diversifying the credit risk across different government and corporate issuers. It has an expense ratio of 0.35% with a market capitalization of $6.51 million.
- ProShares Ultra Yen (YCL): Yen ETFs also offer short term currency movements in terms of leveraged ETFs. The ProShares Ultra Yen seeks daily results that conform to 200% of the US dollar price of the yen. It has an expense ratio of 0.95%.
- ProShares UltraShort Yen (YCS): This is similar in expense ratio and holdings like the ProShares Ultra Yen ETF. It seeks the performance that corresponds to -200% of the US dollar price of the yen i.e. it tracks the inverse performance of the Yen. This is also a leveraged ETF.
The yen based ETFs have added credibility to the currency trading in general. Investors believe that yen ETFs can be used as strategic holdings to not only diversify portfolios away from US dollar but also to pick up potential yield. Currency ETFs provide an inexpensive way to have exposure to the foreign currencies without using derivative markets. The rise of the Japanese currency again has now created the perfect time for launch of more ETFs in this category.
