Inside The Only Singapore Dollar ETF (FXSG, FXA, CYB, CNY)
Eric Dutram: As of now, currency ETF investing remains somewhat underappreciated by most. The space has just over three dozen funds, and a paltry amount in assets across all of the products in the segment.
This is starting to slowly change though, as more ETF providers have sought to launch new funds in the segment with some decent success. In fact, 11 currency ETFs have at least $100 million in assets while another five have at least $50 million under management, suggesting a decent level of interest in some corners of the space.
However, the vast majority of the capital currently invested in the space flows through into just a handful of G-10 currencies. These include widely-traded ones like the dollar, euro, yen, and the pound, which make up the vast majority of the current forex ETF market.
Beyond that, the currency ETF space has also moved beyond the G-10 and into other big economies and their currencies. These include Australia (NYSEARCA:FXA) and China (NYSEARCA:CYB) and (NYSEARCA:CNY), and now thanks to CurrencyShares, Singapore as well (read Can Anything Stop These Southeast Asia ETFs?).
CurrencyShares, a segment of Guggenheim Investments, has just debuted America’s first ETF that focuses on the Singaporean dollar, the Singapore Dollar Trust (NYSEARCA:FXSG). The product looks to track the price of the Singaporean dollar, net of expenses, which come to 40 basis points a year.
FXSG/Singaporean Dollar in Focus
The ETF looks to provide long exposure to the Singaporean dollar, appreciating when the currency goes up against the U.S. dollar, and down when Singapore’s dollar declines against the American currency.
The currency is controlled by the Monetary Authority of Singapore (MAS), the nation’s central bank. This government authority has the ability to regulate all elements of the country’s monetary, financial, and banking programs.
The nation doesn’t utilize a pure free-float currency system though, as the MAS allows the Singaporean dollar to float in an undisclosed band against a secret basket of the country’s major trading partners. This is important for a small country that must import many natural resources, while it also helps to keep exports competitive against many of its main rivals in the region.
While Singapore is often overlooked by U.S. investors in favor of other markets in the region, the country, and its currency, are vital to Southeast Asia. Singapore represents the business heart of the region, and it is one of the most impressive growth stories over the past 50 years (read 5 ETFs for Countries with Highest Employment Rates).
Singapore was at one point just a small fishing village in a favorable location, but a series of pro-trade economic policies changed all that. Despite a total lack of natural resources, Singapore averaged growth of 8% from 1960-2010, catapulting the country into economic prominence.
Today, the average per-capita GDP is over $60,000 while exports are over $350 billion, putting the country into the top 15 in the world for both measures. Thanks to this and the relative lack of progress in its neighbors in the region, the currency of Singapore is arguably the most important—and stable—currency in the Southeast Asia region (read ETFs for the Most Competitive Countries on Earth).
This could make FXSG an interesting choice for investors seeking a relatively low volatility currency that targets this increasingly important region, although huge gains seem unlikely in this product. It could also make for a good choice for investors seeking to hedge out some currency risk in a portfolio, or for those seeking to go beyond China, Australia, and the G-10 in their currency investments.
Can It Succeed?
It is hard to say how this ETF will do in terms of accumulating assets. Currency ETFs are, generally speaking, less popular than other types of funds on the market so there will certainly be a bit of a struggle initially.
Still, the ETF is certainly priced right and its first mover advantage could help its quest in obtaining AUM. It also doesn’t hurt that the Singaporean dollar has done quite well—adding about 12% in the past five years—so this fund could surprise, although it could take a while to get some traction given how well stock markets have been performing lately.