Market Digest

Firm behind eight CurrencyShares ETFs offered by Rydex Investments, with $4 billion in investor assets since end of 2005 – best pure play for international investing, from euro, pound and yen to peso, krona and franc, plus Australian and Canadian dollars

Investors looking for the best pure play into international markets — without the uncertainty of foreign equities or the weighted average of a mutual fund — should consider the group of currency-based Exchange Traded Funds created by Next Investments and available on CurrencyShares.com, the ETF platform offered by Rydex Investments.

Pummeled by low interest rates, an ongoing credit crisis, and a slumping economy, the U.S. dollar has fallen to record lows against major international currencies, which continue to appreciate in line with a global shift away from U.S. assets.

Rydex’s CurrencyShares provide investors an opportunity to participate in the upside movements of a host of non-U.S. denominations — currently eight ETFs in all.

Since Next Investments first helped Rydex introduce the first-ever currency-based ETF in 2005 — initially with a euro-pegged fund called Euro Trust — CurrencyShares has attracted more than $4 billion in assets, in the process becoming the fastest-growing suite of ETFs ever offered by Rydex. Approximately 60% of the funds’ assets are held by retail investors with the balance in institutional accounts.

Investors can currently choose from among eight CurrencyShares ETFs, including funds pegged to the euro (FXE), Canadian dollar (FXC), Japanese yen (FXY), Mexican peso (FXM), Swedish krona (FXS), Swiss franc (FXF), Australian dollar (FXA) and British pound (FXB).

CurrencyShares’ deposits are not held as promissory notes but as actual hard currency accounts by JPMorganChase in London, providing an added measure of security and investor confidence in a market still challenged by credit, liquidity and volatility concerns.

“The downward slope of the U.S. dollar coupled with the increasing vibrancy of global markets has fueled major investor interest in international currency as an asset class. As a result there is a strong demand by both retail and institutional investors for vehicles that provide an efficient and cost-effective exposure to competitive currencies,” explained Daniel McCabe, Next Investments chief executive officer.

Mr. McCabe noted the growing appetite for non-U.S. investment opportunities as an inevitable consequence of a flat global economy. “The days of invincible dollar domination are over,” he said. “The U.S. now competes with countries whose currencies demonstrate strength, stability and liquidity, with considerable upside potential against the dollar — all the ingredients for a highly attractive asset class.”

Not a Short Play Against the Dollar

He added that “investing in foreign currency is not a short play against the U.S. dollar but rather a vote of confidence in world markets. You have tremendous spending power and economic growth generated outside the U.S. today, and much of that eventually finds its way back into the American economy in the form of U.S. export revenue, tourism and direct investment in U.S. securities and companies. International currency investing reflects the economic dynamism occurring globally.”

The Next Investment CEO pointed out that ETFs allow investors an easy and efficient way to tap into an international market without having to resort to picking individual foreign stocks or even stock and index funds that require far more research and patience for long-term return and are frequently beholden to events in U.S. equities and credit markets.

“CurrencyShares is the simplest and most direct way to invest in international economies, while the ETF products we developed were chosen specifically for their underlying liquidity and market openness,” Mr. McCabe said. He noted that China, Brazil and India — while representing the world’s strongest emerging markets — do not support currencies that allow for open trading outside their home countries.

In addition to their trading liquidity, another key aspect of CurrencyShares ETFs is their ability to act as a hedge against further dollar erosion. Investors can write options against their holdings in purchasing more currency-based shares. “In effect, the funds work as a foreign denomination money market account against which investors can purchase options for further appreciation,” Mr. McCabe explained. “As the dollar continues to fluctuate in value, the ETFs mitigate exposure to the greenback.”

Backed by Leading Venture Investor Battery Ventures

The principals of Next Investments are all Wall Street veterans with extensive experience in structuring mainstream and alternative investment products and trading commodities, equities and currency products. Rather than launch their own fund, they decided to structure unique ETFs and other fund concepts that could be marketed by major financial services and asset management firms.

Prior to establishing Next Investments in 2004, the principals helped develop a groundbreaking exchange-traded fund tracking gold. The resulting StreetTRACKS Gold Shares, recently renamed SPDR Gold Shares, was the first commodity-backed ETF introduced in the U.S.. SPDR Gold, marketed by State Street Global Advisors, holds almost $18 billion in assets in trust.

In late 2007, Next Investments received a capital infusion from Battery Ventures, a leading Boston-based venture capital and private equity firm with more than $3 billion under management.

“As investors, we search for that rare combination of outstanding management team, massive market opportunity and unique product offerings, and we’ve certainly found it in Next Investments,” said Battery general partner Sunil Dhaliwal.

“Individual investors have historically been at a tremendous disadvantage to institutions, but Next is changing that,” Mr. Dhawiwal added. “With groundbreaking products such as CurrencyShares, they are leveling the playing field with powerful, accessible, and low-cost investment products. The team’s combination of credibility, creativity, and experience taking ETF products from invention through SEC approvals positions them as a major force in bringing a pipeline of new, innovative products to market.”

Currency Trades for Main Street Investors

The growing success of Rydex’s currency funds comes as investors increasingly look for ways to gain access to global markets. “CurrencyShares give sophisticated institutions as well as Main Street investors the purest point of entry into the most appealing market economies outside the U.S.,” said Next Investment’s chief operating officer Stuart Thomas.

“These funds are not only an important diversification tool for investors, but a great way to secure an interest-rate return while offering protection against both dollar decline as well as inflation,” Mr. Thomas added.

“We will never lose our faith in the U.S. economy but there are so many sovereign markets worldwide that are as essential to buying power as the dollar. CurrencyShares clearly deserve their rightful place in the portfolio of anyone seeking safe entry into global markets.”

About Next Investments

Next Investments is an industry leader in the creation of innovative financial products, with a focus on exchange-traded funds, mutual funds and associated trading and pricing technologies. Next Investments developed the world’s first currency-backed ETFs for Rydex Investments through its CurrencyShares platform, which now holds more than $4 billion under management. In addition, principals of Next Investments helped to develop, launch, and support the first gold-based ETF, SPDR Gold Shares, which hold approximately $18 billion in trust. For more, visit www.nextinvestments.com.

Source: Next Investments