It’s been an up and down week on Wall Street, as investors turned their attention to the Federal Reserve’s policy setting meeting. Though taper talks have been on the table for some months, some were surprised when the Federal Reserve announced that it will begin scaling back its bond buying program next month. The central bank will now purchase $40 billion worth of Treasury bonds per month, and $35 billion worth of mortgage-backed securities – a $10 billion total reduction of purchases. In his press conference, Fed Chairman Bernanke was adamant, however, that asset purchases are not on a pre-set course and that the central bank will remain highly accommodative [see The Fed Effect: How Monetary Policy Impacts Your ETFs].
On the ETF front, industry veteran WisdomTree launched six new funds this week:
WisdomTree introduced its new Bloomberg U.S. Dollar Bullish Fund (USDU), which tracks the Bloomberg Dollar Total Return Index. The underlying index is designed to measure the U.S. dollar’s performance against a diversified, relevant basket of 10 developed world and emerging market currencies with the most liquidity and the largest U.S. trade flows. Therefore, the strategy is essentially designed for investors who believe the dollar’s value will rise against other currencies [see the Complete List of New 2013 ETFs].
USDU charges 0.50%, which is slightly lower than the Currency ETFdb Category average. Other funds that offer similar exposure are the DB USD Index Bullish Fund (UUP, A) and its leveraged counterpart, the 3x Long U.S. Dollar Index Futures ETN (UUPT, B). Both of these funds track an index that is designed to measure the performance of a long investment in U.S. Dollar Index Futures, which measures the performance of the U.S. dollar against a weighted basket of six major world currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
New Fixed Income Products: Rising Rate Bond ETFs
WisdomTree also introduced five new funds that are designed to follow popular fixed income strategies, while at the same time targeting U.S. Treasury exposures to achieve specific durations in order to help manage interest rate risk [see Best & Worst Bond ETFs of 2013]:
- Barclays U.S. Aggregate Bond Zero Duration Fund (AGZD): This fund tracks an index that takes a long position in the Barclays Capital U.S. Aggregate Bond Index, and short positions in U.S. Treasuries that seek to correspond to a duration exposure matching the duration of the long portfolio, with a targeted total duration exposure of approximately zero years.
- U.S. Aggregate Bond Negative Duration Fund (AGND): This fund employs a similar strategy to AGZD, but it aims to provide a targeted total duration exposure of approximately negative five years.
- BofA Merrill Lynch High Yield Bond Zero Duration Fund (HYZD): This fund tracks an index that takes a long position in the BofA Merrill Lynch 0-5 Year US High Yield Constrained Index, and short positions in U.S. Treasuries that seek to correspond to a duration exposure matching the duration of the long portfolio, with a targeted total duration exposure of approximately zero years.
- BofA Merrill Lynch High Yield Bond Negative Duration Fund (HYND): This fund is similar to HYZD, though it attempts to provide a targeted total duration exposure of approximately negative five years.
- Japan Interest Rate Strategy Fund (JGBB): This fund tracks the WisdomTree Japan Interest Rate Strategy Index, which consists of long positions and short positions. The long positions are designed to capture the returns of T-Bills. The short positions in the Index include market capitalization weighted JGBs and are designed to provide exposure to changes in Japanese interest rates.
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Disclosure: No positions at time of writing.