DBV: Unlevered Carry Trade ETF for the Masses

By Matthew Hougan

Powershares DB G10 Currency Harvest Fund (DBV) is a carry trade ETF, it's just not levered up (and that's a good thing).

The carry trade is all about selling currencies with low interest rates and buying currencies with high interest rates. You profit from the interest rate spread... aka, the carry... and away you go. It's the same thing DBV does, except that DBV is unlevered; typically, carry trades are levered up at 10:1 or more.

But I think it's a good thing that it's unlevered, as the key thing about DBV is its pattern of steady long-term returns with relatively low correlations to the market. And despite the fact that it's been a bit more volatile than I suspected when it first launched, it has in general delivered on its promise. The fund is up about 4% since inception in late-2005, compared to a 2% loss on the S&P 500. Not bad, all things considered.

It's one of the best examples I can conjure of an institutional strategy delivered to retail investors in an ETF package.

Comments

[Zack:]

Sorry, I thought the DBV was levered (see link below)
www.invescopowershares...

From ETFConnect as well (www.etfconnect.com/sel...):
"The Fund seeks to track changes in the level of the Deutsche Bank G10 Currency Future Harvest Index. The Index is designed to reflect the return from investing on a 2 is to1 leveraged basis in long currency futures positions for certain currencies associated with relatively high yielding interest rates."

2008 Aug 19 04:54 AM

[kkin365:]

This is the first time I have read about DBV. Intuitively, exchange-rate change plays a key role in carry trade. It is tought enough with one currency (say, Yen); it is certainly much tougher with a basket of currencies, given the geopolitical uncertainties and such.

2008 Aug 19 03:17 PM

[ikkyu:]

My friend, you might read the prospectus. It is levered 2:1, but I agree its a nice fund.

Cheers,
john

2008 Aug 19 07:18 PM