Funky new ETF: good idea?

[brewer12345]

There is a recently launched ETF, the Powershares Currency Harvest Fund (DBV), that look interesting. Details here: http://www.dbfunds.db.com/dbv/index.aspx

They claim that the strategy would have produced attractive returns with relatively little volatility over the past 10 years. It supposedly works by going long futures of the three highest yielding currencies and short the three lowest yielding currencies within a universe of 10 liquid, developed country currencies. Mechanically, it is done via currency futures collateralized with T bills, rebalanced quarterly.

I haven't had a chance to to all the reading yet, but it looks interesting. I have a number of concerns that will need to be satisfied before I even consider investing in this thing, but I would be interested in other opinions.

 

[d]

initial reaction: if the strategy is as simple as you state, and if its profitable, will not others quickly adopt the strategy and wring-out the profits?

 

[brewer12345]

initial reaction: if the strategy is as simple as you state, and if its profitable, will not others quickly adopt the strategy and wring-out the profits?

Dunno. I have downloaded a few papers to read, so we will see what they say. The currency markets are very large and are not dominated by people motivated to transact in ways that stamp out arbitrage opportunities.

 

[saluki9]

Yeah, the currency market does work a little differently than other market. Some here know I'm not a huge fan of active management, but currency is where I let that slide.

We do some work with some currency overlay managers on the fixed income side and they are able to do some pretty amazing things. I'm going to have to take a look at this ETF

 

[FinanceDude]

When I worked at Chase, JPMorgan did structured notes they originated internally that worked somewhat on this principle.............

 

[riskadverse]

This looks interesting to me as well. Can someone here explain to me why they would have posted negative returns for the last year? (unwinding of the japanese carry trade scheme?)

 

[bpp]

This ETF was discussed at raddr's board a few months back:
http://www.raddr-pages.com/forums/viewtopic.php?t=2509&highlight=

Conclusion (at least in my mind) seemed to be that this strategy should in principle be a loser, but happened to be profitable while the BOJ was playing their quantitative easing game. Now that that game is coming to an end, this strategy might be expected to stop working.