ETF Spotlight on PowerShares DB US Dollar Index Bearish (UDN), part of an ongoing series.
Assets: $127.3 million.
Objective: The PowerShares DB U.S. Dollar Bearish Fund tries to reflect the performance of being short the U.S. dollar against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
Holdings: The fund holds a basket of short USDX futures contracts.
What You Should Know:
- Invesco PowerShares sponsors the UDN ETF.
- UDN has an expense ratio of 0.75%.
- The fund is down 0.18% over the last month, down 1.35% over the past three months and up 2.21% year-to-date.
- Futures contracts allocations include: Euro 57.6%, Japanese yen 13.6%, British pound 11.9%, Canadian dollar 9.1%, Swidish Krona 4.2% and Swiss franc 3.6%.
- “It is important to remember that currencies are not a productive asset and they offer very little return potential over the long run,” Morningstar analyst Michael Rawson said. “Currency funds are a poor long-term investment because there is no positive expected return beyond the risk-free rate, which barely keeps up with inflation.”
- “Those hoping to speculate on short-term movements in the dollar should be wary.” Rawson added. “Predicting short-term movements in currencies remains a nearly impossible task that has flummoxed academics and traders for decades.”
The Latest News:
- Optimism over Europe’s finances has boosted the “risk-on” trade recently and pushed the dollar lower.
- Additionally, the dollar depreciated as the minutes from the recent Federal Open Market Committee meeting revealed that some policy makers saw “considerable uncertainty” over U.S. growth prospects, reports Allison Bennett for Bloomberg.
- “Now that we have the right people seeming to talk about the right things in the right way in the European Union we’re seeing the market has just gone nuts,” David Watt, senior currency strategist at Royal Bank of RBC Capital, said. “The U.S. outlook is still contentious. If Europe is making progress in the right direction then the U.S. is making progress in the wrong direction.”
PowerShares DB US Dollar Index Bearish ETF
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Max Chen contributed to this article.