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Get In On The Global Carry Trade With These ETF’s

December 1st, 2009

carry-trade“The global carry trade refers to borrowing in US dollars at low interest rates and investing in higher-yielding currencies…Many believe that the trend of a lower US dollar is inevitable given our fiscal imbalances. The most popular ways to play this idea is through a pair of funds that seek to replicate the carry trade—the PowerShares G10 Currency Harvest fund (NYSEArca: DBV), and the iPath Optimized Currency Carry Fund (NYSEArca: ICI). Both of them use futures to capture the local currency returns,” Carlton Delfeld Reports From Money Show.

“There are some differences between the two. (DBV) is a true ETF where shareholders own shares in a trust, while (ICI) is an exchange traded note (ETN), which is backed by Barclays. In addition, DBV goes long the three highest-yielding G10 currencies while going short the three lowest-yielding currencies. The results can be highly volatile: In the second half of 2008, the fund fell over 30% as the yen (one of the shorts) rose and the Aussie and New Zealand dollars (the longs) fell. This is part of the problem, because some low-interest-rate currencies can actually do quite well for other reasons. This is especially true in times of global turmoil, when low-rate countries like the US and Japan gain huge flows due to their overall stability and low political risk,” Delfeld Reports.

“(ICI) takes a bit of a more sophisticated and conservative approach, carefully selecting G10 currencies to invest in so as to maximize carry while minimizing volatility. It’s also cheaper than (DBV), charging 65 basis points rather than 75 basis points per year. It’s a good vehicle provided you don’t mind its market capitalization of less than $30 million,” Delfeld Reports.


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