IN FOCUS: WisdomTree Dreyfus Commodity Currency Fund (CCX, CEW, CYB)

Investment Strategy: (NYSE:CCX) is an actively-managed ETF that seeks to achieve returns reflective of money market rates in selected commodity-producing countries and changes to the value of those currencies. The fund obtains these exposures by entering into forward currency contracts and currency swaps while investing the capital in US treasuries. The investment thesis is that countries whose economic success is tied to the production of commodities will have currencies that will appreciate as commodity prices increase and money flows into those countries as a result. The fund is sub-advised by The Dreyfus Corporation.

The currencies that the fund currently provides exposure to are: Australian Dollar, Brazilian Real, Canadian Dollar, Chilean Peso, Norwegian Krone, New Zealand Dollar, Russian Ruble and South African Rand. As of Dec 16th, the fund had exposure of between 11.5% and 13% to each of the above-mentioned commodity currencies. Regionally, that meant having a 24% exposure to Asia, 12% to Canada, 28% to Europe, Middle East and Africa and 25% to Latin America. Aside from the currencies that the fund is currently exposed to, it can also invest in Indonesia and Mexico. The average yield to maturity of the fund is 0.15%.

Launch Date: September 24, 2010

Links: Website, Factsheet, Prospectus

Portfolio Managers:

The Dreyfus Corporation serves as the sub-advisor to CCX, as it does for all other active currency funds that WisdomTree provides. The portfolio managers making the day-to-day decisions are:

David C. Kwan – Managing Director, Fixed Income

Zandra Zelaya – Director, Fixed Income

The Numbers:

Expense Ratio – 0.55%

Market Cap – $25.5 million

Daily Volume – 4,537 shares

What’s special about it?

1. Most of WisdomTree’s active currency ETFs have traditionally provided exposure to one particular country, such as the Chinese Yuan Fund (NYSE:CYB). However, the latest currency funds launched have focused on providing exposure to currencies that are part of a certain theme, such as the Emerging Currency Funds (NYSE:CEW), which provides exposure to emerging market currencies. In the same vein, CCX provides exposure to commodity currencies that can benefit from a certain economic theme or trend.

Analysis:

Positives –

– CCX provides one way to structure a trade resulting from the global commodities boom. Exposure to CCX will also help diversify the currency exposure of US investors away from the US dollar. This is an added benefit since many of the factors that cause the US dollar to depreciate are the same factors that raise commodity prices.

Negatives –

While the fund will provide positive exposure to currencies that are benefiting from the commodity boom, the entire investment thesis rests on the case that commodities will continue to appreciate. Even though that is a thesis hard to argue against, investors should be aware that if commodities start going down for some reason, say due to a double dip recession, then all the target currencies in CCX will likely suffer.

– The relatively equal weighting exposure to each of the eight currencies shows that the level of active decision making in the portfolio seems to stop at which eight currencies to include out of the ten possible currencies. In the current allocation, Indonesia and Mexico have been left out. But average weight for the remaining currencies is right about 12%, showing that there is no discretion applied to focus on currencies that could benefit more from a commodities boom.

Written By Shishir Nigam from ActiveETFs | InFocus  Disclosure: No positions in above-mentioned names.

Shishir Nigam is the founder of ActiveETFs | InFocus (http://www.etfshub.com/), which provides extensive coverage and analysis of actively-managed ETFs in US and Canada, including debates on major industry trends, insights on the latest product launches from issuers in the Active ETF space as well as in-depth interviews with industry executives and thought leaders.

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