There Are Better Currency ETFs Than Swedish Krona ETF

| July 21, 2008 | 0 Comments

This weekend I spent a good deal of time thinking about my time overseas.  I remember fondly my flat in London, traveling on the tube, and drinking pints in so many pubs.  I thought about the time I took the EuroStar down to Paris and the numerous cafes and museums I visited.  I wouldn’t trade these experiences for the world.

My cousin has been accepted into an elite program where she’ll be studying in Europe.  Over the next year her travels will be focused on Switzerland and the surrounding countries.  I’ve got to admit, I’m a bit jealous.

We spent a good deal of time talking about the different European currencies, exchange rates, and currency fluctuations.  We even discussed the best ways to convert US Dollars into local currencies.

Most people don’t realize . . .

There’re many types of currencies.  Some are much more important than others.  The top tier is anchored by the US Dollar.  Many smaller countries have fixed their exchange rate to mirror the US Dollar.  This helps eliminate aggressive speculation, and essentially ties their currency values to the world’s largest economy.  Not necessarily a bad idea. . . unless the currency value is declining.

But, I’m going off topic here – Back to the major currencies.

Along with the US Dollar, other major currencies include the British Pound, the Japanese Yen, the Australian Dollar, the Canadian Dollar, the EuroZone Euro, and the Swiss Franc.  These are the “Blue Chip Currencies”.  In our very successful Currency Options Insider Newsletter we focus on trading options on these major currencies.

Most of the world’s economy is built upon these seven major currencies. All have active and liquid markets and are managed by strong central banks.  Just like the US Federal Reserve, the other Central Banks work to keep economies growing while holding down inflation.

The junior currencies.

Many new currency or forex traders also watch the junior currencies. These include the Mexican Peso, the South African Rand, the Singapore Dollar, and the Swedish Krona, just to name a few.  These countries have smaller economies, but they are stable and growing on the global markets.

Sometimes these junior currencies can be very exciting to trade.

Sometimes you can get badly burned.

Just look at the Swedish Krona.  It’s been Sweden’s currency since 1873, and it’s often referred to as the “Swedish Crown.”  The Swedish economy is quite stable, and it’s in the top 20 of the world based on GDP.  Their per capita GDP is more than $36,000 despite record tax levels.  The country is heavily oriented towards foreign trade – which serves them well in prosperous times.

The Swedish Riksbank is the oldest central bank in the world.  It was founded in 1668.  They’ve done a great job of growing the country while holding down inflation.  Since the mid 1990s, their inflation rates are some of the lowest in Europe.

What’s all this mean?

It makes the Swedish Krona a very interesting investment.

Many people have been rushing out to trade the Swedish Krona.  One of the easiest ways to put this in your portfolio is by purchasing an ETF. The CurrencyShares Swedish Krona Trust (FXS) is an easy way to gain exposure to the Swedish currency.

But I wouldn’t put my money there.

See, if you dig a little you’ll sometimes find a problem.  Sweden’s scheduled to join the European Union and become part of the EuroZone.  This means they’ll need to convert over to the Euro.

Here’s the problem.  According to the prospectus, the fund is based on the Swedish Krona / US Dollar exchange rate.  This means that you buy into the fund with US Dollars and when you sell you get back US Dollars.

As the country gets closer to becoming part of the EU, the Krona should start trading in lockstep with the Euro.  This isn’t going to happen overnight, but it will at some point in the next few years.  If you buy this as a long term investment, you’ll be quite surprised when your Krona trade starts looking like the Euro.

Don’t waste your time with the Swedish Krona.  There’re other currencies you’d be better off owning in the long run.

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Category: Currency Trading

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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