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ETF Investors Have Regret Following the Swiss National Bank’s Announcement

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MarketMuse update courtesy of Tom Lydon from ETF Trends. This update acts as a follow up from one of yesterday’s posts.

Thursday’s biggest financial market headlines came courtesy of the Swiss National Bank (SNB), which opted to drop the franc’s peg to the euro, a move that sent the Swiss currency soaring and Swiss stocks to one of their worst one-day performances on record.

The CurrencyShares Swiss Franc Trust (NYSEArca: FXF) easily Thursday’s top performing non-leveraged ETF with a gain of over 17% on volume that was nearly 34 times trailing three-month daily average. SNB’s decision to do away with the franc’s euro peg was a surprise, particularly because it conflicted with recent rhetoric from the central bank, which indicated SNB was looking to defend the EUR/CHF peg.

Forex traders and ETF investors alike were caught off-guard.

“Data from the Commodity Futures Trading Commission released on Friday showed net short positions of 24,171 contracts on the Swiss franc, the largest since June 2013. Adding in 662 short option contracts gives a combined position of 24,833 contracts or $3.5 billion at the current rate of around 0.90 franc to the dollar,” according to Reuters.

Regarding ETFs, the iShares MSCI Switzerland Capped ETF (NYSEArca: EWL), the largest U.S.-listed Switzerland ETF, lost almost $27 million in assets since the start of 2015 heading into Thursday while FXF was light by almost $5 million. The First Trust Switzerland AlphaDEX Fund (NYSEArca: FSZ), a smart beta spin on Switzerland ETFs, had not lost or taken in any money since the start of the new year.

Those numbers are not staggering, but fourth-quarter outflows from Switzerland ETF paint a better picture of investors missing out on Thursday’s Swissie surge. In the last three months of 2014, investors pulled nearly $198 million from EWL and $113.5 million from FSZ.

With gold prices languishing and the dollar surging, investors also did not stick around to wait for a franc rally and pulled almost $10 million from FXF. Of course it is with the benefit of hindsight and few if any traders could see a 17% one-day move coming for a currency ETF, but investors that left equity-based Switzerland ETFs missed out on EWL surging nearly 4% and FSZ climbing 3.7% Thursday.

Some former gold ETF investors also missed. The SPDR Gold Shares (NYSEArca:GLD) lost $3.2 billion in assets last year and has bled another $115 million to start 2015, but a sustained rally by the franc could ameliorate that situation.

On Thursday, GLD, the world’s largest gold ETF, climbed 2.5% on more than double the average daily volume to reclaim its 200-day moving average for the first time since September.

For the original article from ETF Trends, click here.

ETF News, Global Macro Strategy

Breaking News: The Black Swan from Switzerland: A Macro View and the ETF Angle

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Marketsmuse.com update profiling Swiss National Bank (SNB) lowering of deposit rate to a -0.75% has, as noted by Neil Azous of global macro think Rareview Macro LLC,  “shocked the markets” and “will be booked into the Black Swan record books as an event to be remembered. ” Below update starts with extract from late morning edition of Rareview Macro’s “Sight Beyond Sight” and followed by the ETF angle, courtesy of late morning summary from ETFtrends.com

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Historic Day for Global Investors…Impact Will Be Felt for Weeks to Come

  • Model Portfolio – Update
    Can You Trade Swiss Franc?
    Commodities – Quick Thoughts
    Big Picture – Asset Allocation

 

This morning, in a move that shocked the markets, the Swiss National Bank (SNB) removed its minimum exchange rate policy of holding the Euro-Swiss (EUR/CHF) at 1.20, lowered its deposit rate to -0.75% from -0.30%, and their target LIBOR rate to between -1.25% and -0.25%. The main reason offered by the SNB for its decision was the strength of the US Dollar and the diverging monetary policy between regions.

As a reminder, the SNB had a regularly scheduled meeting on December 11th where no changes to policy were made, just a reiteration that it remained steadfast in its commitment to the EUR/CHF 1.20 floor. On December 18th, largely as a result of very strong safe-haven inflow from Russia, the SNB surprised the market and reduced its deposit rate to -0.30% from -0.05%, surpassing the European Central Bank’s (ECB) which set its deposit rate at -0.25%. Two days ago the SNB’s vice-chairman said that the bank “are convinced that the minimum exchange rate must remain the cornerstone of our monetary policy”. In other words, there was no warning of this.

Since the EUR/CHF 1.20 floor was introduced a few years back the market sentiment was firm in that if the floor was to ever break then the initial downside risk was 1.15-1.10 at a maximum.

The Electronic Broking Services (EBS), the benchmark for professional FX trading, said the market low for the EUR/CHF on its platform was 0.8500 Francs per Euro and confirmed the “miss-hit” at 0.0015.

THAT MEANS NO ONE GOT STOPPED OUT OF THEIR LONG EUR/CHF POSITION ABOVE 1.0000!

This is not the commodities market, where traders place stop-limit orders and wait for a product to bounce back before being taken out of their position due to illiquidity. It is FX where stop-loss orders are predominantly used and you are taken out at the level at which the market first traded.

Therefore, today will go down in history as a “Black Swan” event. Continue reading →