The world could be getting smaller for exchange-traded fund [ETF] investors, as WisdomTree (WSDT.PK) is proposing 12 new money market funds to cover 17 different foreign markets, both developed and emerging.
The new funds share much in common with the popular Rydex CurrencyShares ETFs and the iPath Currency ETNs, with two important tweaks: 1) They cover many new markets; 2) They are money market funds and may offer higher interest rates on deposits.
"There's some overlap with existing ETFs offered by Rydex and iPath," said Bruce Zaro, a strategist at Delta Global Advisors. "But the good news is that there are six new ones. And that would give ETF investors 17 currency funds to choose from, representing currencies in almost every major market in the world."
The new WisdomTree currency ETFs would open exposure for the first time to U.S. investors to the Brazilian real, the Chinese yuan, the Indian rupee, the New Zealand dollar, the South African rand and the South Korean won.
Another fund, the WisdomTree Developing Markets Fund, proposes to make short-term investments in money market instruments from 10 emerging markets: Brazil, Chile, China, Czech Republic, Hungary, India, Poland, South Korea, Taiwan and Turkey.
Short-term yields among some of the emerging markets listed top 14% now. On the low end, yields are running around 3%. "There's a big range among these countries," said Roger Nusbaum, an Arizona-based independent money manager for advisors. "But the tilt in the fund appears to be towards the higher-yielding countries."
The average maturity on the funds should range between 60-90 days, he added. They're also being touted as actively managed ETFs.
"On short-term investment vehicles like these, active management won't be strategic as much as operational," Nusbaum said. "They're not going to try to play the yield curve. They're just going to have to manage the portfolios more actively in order to buy and sell such short-term instruments."
WisdomTree's also proposing four new foreign currency ETFs that would face existing competition. Those would invest in the British pound, the Canadian dollar, the euro and the yen. Rivals in those currency markets are Rydex and Barclays.
In a filing dated Jan. 4, WisdomTree also said it planned to launch a separate U.S. Cash Fund and a U.S. Government Cash Fund.
If approved, the firm's prospectus indicated that the new funds could come out within 75 days. But some are skeptical that many of the ETFs will ever even see the light of day.
"WisdomTree has a ton of funds that they filed for more than a year ago, including a bunch of single-country funds, that still haven't come to market yet," Nusbaum said. "They've been on the books for ages and I really don't see many of them ever launching."
But those are stock ETFs aimed at longer-range investments in niche markets, he points out. "Hopefully, WisdomTree will move forward with these money market funds," Nusbaum added. "It would really add some nice short-term investment tools that haven't been available to further diversify U.S. dollar-focused portfolios."
WisdomTree declined to comment on the filing. But in its written proposal to regulators, the company detailed that the new ETFs would invest directly in commercial or government paper. That would differ from Rydex, which buys underlying currencies in more of a one-to-one fashion.
"The Rydex funds own currency in something like a savings account, to put it simply," Nusbaum said.
The iPath ETNs own a debt obligation from its parent bank tied to movements in the underlying currencies. "So it mimics the currency without really owning it," Nusbaum said.
While he sees little chance that Barclays, an international banking giant, won't be able to cover its debts, Nusbaum says, "the Rydex approach is probably the purest strategy with WisdomTree somewhere in between that and iPath in terms of currency ETFs."
The new filing also represents WisdomTree's first foray into money market funds. "It seems they want to make currency ETFs a whole new product line from U.S. money market funds," said Zaro. "They want to provide a way for U.S. investors to park money outside their home market in a very liquid and reasonably safe manner."
WisdomTree Money Market ETFs
Written by Murray Coleman
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