Carry Trade Exposure with ETFs

Includes: DBV, ICI
by: Tom Lydon

The currency carry trade might sound like some esoteric way to invest in money, but the truth is that ETFs have made it possible for anyone to take advantage.

The carry-trade involves for selling a currency from a low interest rate country and using the proceeds to purchase a currency from a high interest rate country. The idea is not to capture big moves, but to exploit the spread between the two countries’ interest rates, explains ETF professor on Benzinga.

ETFs have allowed individual investors access to capture these movements. These two funds in particular can enable you to do so:

  • PowerShares DB G 10 Currency Harvest (NYSEArca: DBV): DBV can hold positions in any of the following 10 currencies: The U.S. Dollar, the Euro, the Japanese Yen, the Aussie, Canadian and New Zealand Dollars, the Norwegian Krone, the Swedish Krona, the British Pound and the Swiss Franc. DBV tracks an index made up of long futures positions on the three G10 currencies associated with the highest interest rates and short futures positions on the three currencies associated with the lowest interest rates.

  • iPath Optimized Currency Carry ETN (NYSEArca: ICI): ICI tracks the Barclays Intelligent Carry Index, which also follows the G10 currencies. Note that ICI is an exchange traded note, so it’s a debt instrument backed by the credit of the issuer.