PowerShares, Deutsche Team Up On Leveraged Dollar ETNs

by on May 25, 2011 | ETFs Mentioned:

PowerShares and Deutsche Bank have rolled out two exchange-traded notes that give investors additional options for expressing their outlook on the performance of the U.S. dollar against its major developed market rivals. The two new ETNs are linked to an index that consists of U.S. Dollar Index Futures, which reflect the performance of the greenback against a basket consisting of the euro, yen, pound, franc, Canadian dollar, and Swedish krona. The two new ETNs are:

  • 3x Long U.S. Dollar Index Futures ETN (UUPT): This note will deliver monthly results that correspond to 300% of the change in the futures-based index. UUPT charges an expense ratio of 0.95% [see UUPT fact sheet].
  • 3x Short U.S. Dollar Index Futures ETN (UDNT): This note will deliver monthly results that correspond to -300% of the change in the futures-based index. UDNT also charges 95 basis points annually [see UDNT fact sheet].

PowerShares already offers non-leveraged versions of the U.S. dollar funds, including (UUP) and (UDN). Those funds have become popular tools among investors seeking to bet on or against the dollar or to hedge greenback exposure; UUP has about $1.2 billion in AUM while UDN has about $170 million in assets. Both of those products are structured as commodity pools; the new ETPs are exchange-traded notes, meaning that they are debt securities whose value is linked to the specified index [The Ultimate Guide To Leveraged ETFs].

Under The Hood

Currency Index Weight
Euro 57.6%
Yen 13.6%
Pound 11.9%
Canadian Dollar 9.1%
Krona 4.2%
Franc 3.6%

The underlying index is dominated by the euro, which accounts for about half of the portfolio. As such, UUPT and UDNT will exhibit significant sensitivity to movements in the USD/EUR exchange rate, and may be useful tools for investors looking to bet on currency movements. While the new ETNs don’t offer the degree of leverage that many forex traders employ, they should feature significantly more volatility than UUP and UDN. “We are delighted to provide investors an opportunity to further benefit from Deutsche Bank’s industry-leading foreign exchange platform through exchange-traded products,” said Martin Kremenstein, a Director at Deutsche Bank, in a press release. “These ETNs provide investors additional ways to express a view on the US Dollar.” [see ETF Insider: Buying Opportunities After Panic Selling]

There are some existing options for investors seeking leveraged exposure to the U.S. dollar; ProShares offers a pair of leveraged ETFs focusing on the USD/EUR exchange rate, EUO (short euro) and ULE (long euro). Van Eck offers a similar pair of ETNs, DRR and URR. All of those products reset exposure on a daily basis; the new ETPs reset exposure monthly, reducing the monitoring and rebalancing requirements for investors [see more in the Leveraged ETF Center].

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Disclosure: No positions at time of writing.