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ETF Specialist

You Don't Need Currency ETFs to Bet on Exchange Rates

In fact, you may already be betting ...

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The case for currencies as an asset class is a debate that has been gaining more and more (pardon the pun) currency. After attracting inflows of roughly $3.2 billion in the fourth quarter of 2009, asset flows into currency exchange-traded funds cooled off considerably in the first half of this year. That is, until the Federal Reserve's recently announced second quantitative easing program sparked concerns of global currency wars. Through the first nine months of the year, currency ETFs and exchange-traded notes saw net outflows totaling nearly $2.5 billion, but investors poured more than $119 million into the group in October. As of Nov. 15, 2010, there was about $5.3 billion invested across 32 currency funds.

The proliferation of currency ETFs is yet another example of ETFs democratizing an asset class in which its accessibility was previously difficult or impractical for retail investors. However, just because these tools are readily available to everyone (as a result of their exchange-traded nature) doesn't mean they're necessarily appropriate for all.

John Gabriel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.