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FAQ
1. How can I invest in the SCI?
3. What about foreign-currency Certificates of Deposit drawn on a US bank?
5. I am a fund manager. How can I use the SCI?
6. When might EWI change components in the Stable Currency Index?
7. For traders, might the SCI replace standard methods of hedging against currency risks?
1. How can I invest in the SCI?
The SCI is an investment index. Currently there are no exchange-traded funds utilizing the SCI but we expect to see their development in the near future. But you can invest in the index using the following methods:
(1) If you are wealth-preservation oriented, you can, through Safe Wealth Consultants Ltd., establish a relationship with a Swiss institution under which you can buy currencies in a mix that tracks the SCI: clientservices@safewealthconsultants.com or (011 from the U.S.) + 41-21-966-7200. Minimum investment: 200,000 USD or counter equivalent.
(2) In the States, open a managed account with Hillier Capital and arrange to have your account track the benchmark: 616-796-6659 www.hilliercapital.com. Substantial minimums apply.
(3) Open an account at a safe bank that will obtain short-term government debt instruments in the four SCI currencies for your account.
(4) Buy bonds, bills or certificates of deposit in equal portions in each SCI country.
(5) Set up a bank account in each SCI country and fund it.
2. Can I buy SCI futures?
Not currently. One day soon an exchange may offer a futures contract on the dollar/SCI, or other similar vehicles. Be aware that when you deal with futures and options, you inevitably take on third party/custodial risks. Proceed with care.
3. What about foreign-currency Certificates of Deposit drawn on a US bank?
As with any deposit account, the main issue is bank safety. As far as we know, no bank that offers foreign-currency CDs has a strong Weiss safety rating. (For more information on Weiss' ratings services, visit www.weissratings.com. Pay particular attention to the "Liquidity" category.)
4. Would you recommend buying Traveler's Checks in the proportions suggested by your SCI Composition Chart?
With any demand note, there is always a risk of default on the part of the issuer. This includes Traveler's Checks. In addition there are redemption risks, which any crisis would likely exacerbate.
5. I am a fund manager. How can I use the SCI?
Any person or firm that is internationally oriented benefits from having a global, stable index for storing assets. For example, if you're a hedge fund manager, it allows you to park your idle money in a stable basket of currencies, thereby using the basket as a money market "sweep" account.
Beyond holding money in an SCI allocation, any international investor or fund manager can follow every market worldwide in SCI terms and make investment/trading decisions based on it. This will reduce the complexity of the investment problem because no longer will you have to analyze a double bet on both the market and its currency. Say you're comparing real estate in Tokyo and London. By measuring them in SCI terms, you level the playing field. The SCI normalizes the fluctuations of the yen and pound for you; you look at true values in common terms. You will own or short a given market in its local currency, but you will measure it in SCI terms. This means that as far as assessing the underlying value and deciding whether to get in and stay in the position, the local currency's fluctuation will no longer be a separate variable. For more information about this, please see our Stable Currency Benchmark web site.
6. When might EWI change components in the Stable Currency Index?
The point of the SCI is to enable individual currency fluctuations to cancel each other out so that investors and savers have a neutral parking place for their money. Similarly the SCI is useful to traders who want to avoid currency exposure.
To create the SCI we chose currencies that had the best long-term situations—from many points of view—in their respective global quadrants. Nevertheless, we can imagine a shift in the conditions that caused us to include a currency in the SCI -- such as a military coup, a communist takeover, or a radical change in policy by a monetary authority. Any such instability would cause EWI to consider changing the composition of the SCI.
Having said that, good fundamentals typically attend tops and bad ones attend bottoms. Frequent changes to the SCI might mean the index would repeatedly take on new components at tops and unload them at bottoms, which is how most people lose money in their portfolios.
7. For traders, might the SCI replace standard methods of hedging against currency risks?
Yes. It's better for many traders because the SCI is not a currency play. You could call it an anti-currency play. It plays a role similar to a money index for stock market traders when they move to the sidelines.
