WisdomTree Plans Active Currency ETFs

by on January 7, 2010

WisdomTree, the New York-based ETF issuer best known for its fundamentally-weighted domestic and international ETFs, is looking to expand its line of currency products. In a recent filing with the SEC, WisdomTree highlighted two new funds that would offer unique exposure to the U.S. dollar.

The first proposed ETF is the WisdomTree Rising Dollar Fund, which would seek to benefit from appreciation in the U.S. dollar relative to a selected basket of non-U.S. currencies. Up to 15 currencies, including both developed and emerging markets, can be included “in an effort to balance the need for regional and economic diversification with operational efficiency and sufficient liquidity.” To achieve its exposure, the fund will invest in short-term U.S. government bonds and money market securities, along with similarly-sized positions in currency forward contracts, futures, and swaps designed to rise in value when the dollar appreciates.

The proposed Rising Dollar Fund could be with the PowerShares DB US Dollar Index Bullish Fund (UUP), but the two ETFs would be far from identical. Most notably, UUP replicates a long position in the dollar against six developed currencies, while the new WisdomTree could offer exposure relative to up to 15 currencies, both developed and emerging. UUP has seen a surge in popularity over the last several weeks, taking in a whopping $1.8 billion in the month of December alone and more than doubling AUM over November.

The second fund proposed by WisdomTree is the Commodity Currency Fund, which would seek to achieve total returns reflective of money market rates available to foreign investors in certain commodity-producing countries as well as movements in these currencies relative to the greenback. Representative countries may include Australia, Brazil, Canada, Chile, Indonesia, Mexico, New Zealand, Norway, Russia, and South Africa.

The Commodity Currency Fund would also be similar to an existing ETF, this time the Dreyfus Emerging Currency Fund (CEW) from WisdomTree. As its name suggests, CEW invests exclusively in currencies of emerging markets, but there could be some overlap. Among the possible currencies mentioned in the new fund’s prospectus, the Brazilian real, Chilean peso, Mexican peso, and South Africa rand are eligible for inclusion in CEW.

Hedging currency exposure has become a focus for WisdomTree. Last week, the firm launched the International Hedged Equity Fund (HEDJ), the first ETF to offer international equity exposure while neutralizing the impact of currency movements on overall returns.

According to the filing, the funds will be “actively managed using proprietary investment strategies, techniques and processes.” No expense ratio information was included.

Disclosure: No positions at time of writing.