Invesco CurrencyShares Canadian Dollar Trust (NYSE: FXC)

Invesco CurrencyShares ® Canadian Dollar Trust is a grantor trust that issues shares designed to track the value of the Canadian dollar relative to the US dollar. The trust holds actual Canadian dollar deposits and does not use derivatives or leverage. Its shares trade on NYSE Arca under the ticker FXC and represent a proportional interest in the trust’s currency holdings plus any accrued interest less expenses. The structure provides investors with a simple transparent way to gain exposure to the Canadian dollar without opening a foreign bank account. The trust operates as a passive investment vehicle with no officers directors or employees and relies on service providers for administration and custody.

The trust generates revenue primarily from interest earned on its Canadian dollar deposits held at the depository. Interest accrues daily on the primary deposit account and is paid monthly. This interest is used to cover the sponsor’s fee and other trust expenses; any excess interest after expenses is distributed to shareholders on a pro rata basis. The trust does not engage in trading or seek to profit from currency fluctuations; its income stream is therefore limited to the yield on the underlying cash balances. Authorized participants who create or redeem baskets pay transaction fees to the trustee and variable fees to the sponsor, but these amounts are not retained by the trust as revenue.

Within the specialty currency exchange traded product market the trust competes with similar offerings that provide exposure to other major currencies such as the euro yen pound and swiss franc. Key competitors include products issued by other sponsors such as WisdomTree Barclays iShares and State Street Global Advisors. The trust’s competitive advantages stem from its low expense ratio of 0.40 percent per year its physical backing by actual Canadian dollar deposits and its transparent daily net asset value calculation. Unlike some currency products that use forwards or futures the trust holds the currency directly which reduces counterparty risk and eliminates roll costs. Its simple grantor trust structure also avoids complex tax treatments associated with partnership based exchange traded notes. These features make the trust attractive to both retail and institutional investors seeking a low cost pure play on the Canadian dollar.

The trust serves a broad base of investors that includes individual retail investors seeking foreign currency exposure financial advisors constructing diversified portfolios institutional investors such as pension funds and endowments and hedge funds that use the product for tactical currency positions or cash management. Because the shares trade like any stock on NYSE Arca they are accessible through standard brokerage accounts and can be bought or sold intraday. The trust does not disclose the names of specific investors but its marketing materials indicate that it is designed for both sophisticated market participants and those new to foreign currency investing.