What is the Swiss Franc ETF (FXF)?
The Invesco CurrencyShares Swiss Franc Trust (NYSE: FXF) is an exchange-traded fund designed to track the price of the Swiss franc relative to the US dollar. Launched in 2006, FXF holds physical Swiss francs in deposit accounts and aims to mirror the CHF/USD exchange rate. With over $200 million in assets under management, it’s the most accessible way for US investors to gain exposure to Switzerland’s currency without opening a forex account. FXF trades like a stock with a low 0.40% expense ratio, providing cost-efficient access to currency markets.
Why Consider Swiss Franc Exposure?
The Swiss franc (CHF) has earned its reputation as a “safe-haven” currency for compelling reasons:
- Economic Stability: Switzerland boasts AAA credit ratings, low debt, and consistent budget surpluses
- Political Neutrality: Longstanding neutrality reduces geopolitical risk exposure
- Strong Institutions: Independent central bank (SNB) with a history of prudent monetary policy
- Inflation Resistance: Historically lower inflation than major global currencies
- Diversification: Low correlation with equities during market turmoil (e.g., CHF appreciated 10% during 2008 crisis)
During periods of global uncertainty, investors flock to CHF, making FXF a potential hedge against market volatility.
How FXF Works: Mechanics and Structure
FXF operates through a simple yet effective structure:
- Investors buy shares of the ETF through their brokerage accounts
- Fund assets are held as physical Swiss francs in JP Morgan Chase deposit accounts
- Share value fluctuates with the CHF/USD exchange rate (e.g., if CHF rises 2% vs USD, FXF should rise ~2%)
- Interest earned on franc deposits is distributed as dividends to shareholders
Unlike leveraged ETFs, FXF doesn’t use derivatives, reducing counterparty risk. Its NAV updates every 15 seconds, providing real-time pricing transparency.
Key Benefits of Investing in FXF
- Portfolio Diversification: Reduces correlation risk with US stocks and bonds
- Inflation Hedge: Protects purchasing power during dollar weakness
- Low Entry Barrier: Purchase as little as one share (~$100) vs. forex minimums
- Liquidity: Average daily volume exceeds 100,000 shares for easy entry/exit
- Tax Efficiency: Qualifies for lower long-term capital gains rates if held >1 year
Understanding the Risks
While FXF offers advantages, consider these challenges:
- Currency Volatility: SNB interventions can cause sharp moves (e.g., 2015’s “Francogeddon” when CHF surged 30% in minutes)
- Interest Rate Differentials: Rising USD rates can weaken CHF relative to dollar
- Opportunity Cost: Zero yield in negative-rate environments (Swiss rates were negative 2015-2022)
- Inflation Erosion: Though low, Swiss inflation still gradually reduces purchasing power
- Tracking Error: Fund expenses may cause slight underperformance vs. spot rate
How to Invest in FXF: A Step-by-Step Guide
- Open a Brokerage Account: Choose a platform offering ETF trading (e.g., Fidelity, TD Ameritrade)
- Research Timing: Analyze CHF fundamentals like SNB policy and USD strength
- Place Your Order: Use the ticker “FXF” with market or limit orders
- Monitor Positions: Track CHF/USD rates and SNB announcements
- Rebalance Strategically: Allocate 2-5% of portfolio max to avoid overexposure
FXF Alternatives for Swiss Franc Exposure
Other ways to access CHF include:
- Forex Trading: Direct spot/futures contracts (higher risk, requires forex account)
- Swiss Stocks: Nestlé (NSRGY) or Novartis (NVS) ADRs provide indirect exposure
- Multi-Currency ETFs: Funds like UDN (weak dollar ETF) include CHF among baskets
- Swiss Government Bonds: Low yields but high safety (accessible via BNY Mellon’s BWZ)
FXF FAQ: Your Top Questions Answered
Q: Does FXF pay dividends?
A: Yes, it distributes interest earned on franc deposits quarterly. Yields vary with Swiss interest rates.
Q: How is FXF taxed?
A: Gains are taxed as ordinary income if held <1 year. Long-term holdings qualify for 15-20% capital gains rates. Dividends are ordinary income.
Q: Can FXF lose all value?
A: Extremely unlikely. Total loss would require CHF becoming worthless – improbable given Switzerland’s stability.
Q: How does SNB policy affect FXF?
A: SNB interventions to weaken CHF (like currency sales) can pressure FXF. Rate hikes typically strengthen it.
Q: Is FXF a good inflation hedge?
A: Historically yes, but effectiveness depends on USD weakness. It outperformed during 70s/80s inflation but lagged during 2021-2022 spikes.
Q: What’s the minimum investment?
A: Just one share – currently ~$100. No account minimums beyond brokerage requirements.
Final Thoughts
FXF provides a straightforward tool for hedging currency risk or betting on Swiss franc strength. While not a standalone investment, its role in diversifying portfolios against dollar weakness and market stress makes it worth consideration. Always assess your risk tolerance, monitor SNB policies, and consult a financial advisor to determine if FXF aligns with your strategy. As global volatility persists, the Swiss franc’s safe-haven appeal could make this ETF increasingly relevant for defensive investors.
