Retail Investors "Euro-Screwed"?

By: David Fry | Sat, Oct 22, 2005
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In registration with the US Securities & Exchange Commission will be the first "pure" currency play, as Rydex Investments is the Euro Currency Trust. If approved, it will trade under the symbol FXE.

FXE will be structured as a grantor trust. The creation units will consist of 100,000 shares, each representing €40, for a total of €4 million. That would put the value of each individual share at $50, based on a conversion rate of EUR=$1.25.

According to a report published by Exchange Traded Fund Report, "Rydex ETF represents just a first step, and a baby-step at that, into the currency markets. It is just one currency, although a major one, and it is unclear whether shares will be available for shorting by retail investors who believe that the Euro will decline against the US dollar. The registration statement makes no mention of the possibility of an inverse Euro ETF, which would address that issue."

That's a big deal since retail investors have had a difficult time shorting most ETFs should they so desire. (Please review, "Retail Investors Get the Short Shaft") And, what is the purpose of having FXE in your portfolio if you can only be "long" or not a participant? Doesn't it exist for hedging non-dollar denominated assets? Will that not be a benefit available to retail investors? Or, is it just being issued so that institutional investors can play while retail is excluded again?

Sure, I can hear the issuer, sponsor and exchange all saying the same thing: "It's a stock lending problem of the retail investors' brokerage company". Right. But, you won't find any of these insiders assisting retail in realizing this feature. Why? Because they don't have a monetary incentive to assist retail since they only earn more fee income when new shares are issued, not from shares already in circulation. They'll just issue the ETF and walk away. Or, since the AMEX is now commencing options trading for various new ETFs, they'll steer retail investors to those markets which are more lucrative to them and riskier for investors.

To be fair, Rydex is a firm that has been a leader in issuing "inverse" index-based mutual funds (these funds profit by declining index prices). Given that, perhaps they'll be more sensitive to that need and want to profit by sponsoring an "inverse" series. Until there is at least mention of that intention, it's clear that retail investors will be left watching the big boys enjoy and profit while they get the short end of the stick.


 

David Fry

Author: David Fry

David Fry
ETF Digest

Dave Fry has devoted over 30 years to the business of trading and portfolio management. His registration as an arbitrator with both the National Association of Securities Dealers (NASD) and the National Futures Association (NFA) attests to his extensive experience and spotless compliance record.

Dave founded the ETF Digest in 2001 and was among the very first to see the need for a publication that provided individual investors with information and advice on ETF investing.

By 2002 ETF Digest trading programs were making triple-digit gains, despite the sharp overall market decline at that time, and Daves newsletter began attracting favorable coverage in Barrons, Forbes.com, and Wall Street Access.

Dave is a frequent commentator on ETFs and other issues important to individual investors, and his perspectives are featured in financial news sources such as CBS MarketWatch, Investor's Business Daily, Dow Jones Newswire, National Business Review, MSN Money, Yahoo! Finance, Bankrate.com, IndexUniverse.com, ETF Zone, and ETF Investor.

As the scope of ETF investing has expanded dramatically over the past few years, Dave has maintained a vital position as an investor advocate. He speaks out in favor of new ETFs to cover important market sectors and has seen new ETFs issued as a result. He is also very active in pointing out problems in the ETF marketplace to sponsors, issuers, brokers, and the media. Dave is committed to remaining at the forefront as this major investment trend continues to grow.

Some of the highlights of Dave's career before he launched ETF Digest include the following:

In 1999, he founded TechInvest Inc. and began sharing his expertise through the Internet in his TechTrend Advisor newsletter.

From 1997-99, he was Managing Director, Proprietary Investments, at JWH Investment Management (JWHIMI), an affiliated company of John W. Henry & Company. In that capacity, Dave was responsible for the management of private investments as well as some corporate accounts.

For a period of 10 years prior to joining JWHIMI, David owned and operated an NASD broker/dealer, Fry & Co., and an SEC registered investment advisory firm, Asia-Pacific Investment Management Inc. He was also a registered Commodity Pool Operator, Commodity Trading Advisor, and Introducing Broker.

Prior to operating his own investment firms, Dave was a Vice President, Investments, at Shearson Lehman Bros., and he held a similar position at Paine Webber.

During his tenure with registered firms he maintained the following licenses: Municipal Bond Principal (Series 53), Options Principal (Series 4), General Securities Principal (Series 24), General Securities (Series 7), Commodity (Series 3), State Securities License (Series 63), and State Insurance License (Life).

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