By Murray Coleman
Barclays Global Investors [BGI] launched the iPath Optimized Currency Carry Exchange Traded Note (ICI). "We've got three single currency iPaths we launched last year," said Noel Archard, BGI's head of U.S. iShares product development. "The advisor feedback we got was that they'd like to be able to invest in currency baskets as well. So this takes pretty standard institutional carry trade strategies and looks at the G-10 currencies."
With an expense ratio of 0.65% per year, ICI tracks the Barclays Intelligent Carry Index. That benchmark uses quantitative modeling to capture the returns of the highest-yielding currencies from G-10 nations. The methodology results in the portfolio taking long positions on some currencies and shorting in lower-yielding currencies.
But it doesn't have any set number of long and short currencies it'll take position in at any given time. As of February, the ETN was shorting the U.S. dollar, the Swiss franc, the Swedish krona and the Canadian dollar. It was long the six other currencies in its basket. Those were: the euro, the yen, the British pound sterling, the Australian dollar, the New Zealand dollar and the Norwegian krone.
"There is some risk involved with a currency ETN," Archard said. "But ICI has a predefined methodology using a mean variance optimization strategy to keep volatility within about a 5% range."