3 Basket ETFs Your Broker Forgot to Mention
Equity-based ETFs can be described as baskets of various stocks. Whether it is a broader market domestic fund, a sector ETF or an emerging markets equities play, the basket approach is used over and over again in the exchange-traded products universe.
Noteworthy is the fact that as the exchange-traded products industry has evolved, so has issuers’ use of the basket technique. The basket application that has proven so successful with equities is being used with other asset classes and some of those ETFs may not be getting the attention they deserve.
With that in mind, here are a few non-equities basket ETFs that are worthy of further consideration in the current market environment.
PowerShares DB G10 Currency Harvest Fund (NYSE: DBV)
Remember the carry trade, the favorite tool of currency traders looking to exploit the difference in interest rates between high and low rate countries? That trade was savagely repudiated during the global financial crisis, but the carry trade is not dead.
With roughly 40 countries operating with near zero or negative interest rates, the carry trade could be starting to rebound and that could potentially be good news for DBV. DBV’s index “is composed of currency futures contracts on certain G10 currencies and is designed to exploit the trend that currencies associated with relatively high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates,” according to PowerShares.
As of January 18, DBV’s holdings looked like this: Long Australian and New Zealand dollars and Norwegian krone and short euros, Swiss francs and Japanese yen. Home to nearly $348 million in assets under management, DBV has gained more than three percent in the past month.
ETFS Physical White Metals Basket Shares (NYSE: WITE)
Following another up year in 2012, gold has now finished higher in twelve consecutive years. Predictably, the longer gold’s bull market runs, the louder the chorus grows calling for bullion’s bubble to burst.
Fortunately, there are ways for investors to maintain physical holdings of other precious metals and WITE presents an alternative to owning all three of the iShares Silver Trust (NYSE: SLV), the ETFS Physical Palladium Shares (NYSE: PALL) and the ETFS Physical Platinum Shares (NYSE: PPLT) because those are the metals held by WITE.
WITE has recently proved its mettle (no pun intended) to investors. In the past month, the fund has outpace the SPDR Gold Shares (NYSE: GLD) and slightly outpaced SLV. Platinum’s surge has put PPLT well ahead of WITE, but bullishness for platinum and palladium does positively impact WITE. Including Tuesday’s 1.4 percent gain, WITE is up almost eight percent in the past month.
Investors for a basket fund that does not exclude gold should consider the ETFS Physical PM Basket Shares (NYSE: GLTR).
WisdomTree Dreyfus Commodity Currency Fund (NYSE: CCX)
In a perfect world, the WisdomTree Dreyfus Commodity Currency Fund would make for an ideal weak dollar play as the ETF is designed to profit from increases in some of the so-called commodity currencies. For example, higher oil prices should benefit CCX given its exposure to major oil-producing nations such as Russia, Norway and Canada.
CCX has been a decent performer, gaining half a percent in the past month, and it should be noted that nearly all of the fund’s holdings are short-term Treasury bills so credit risk is not a major issue with this ETF.
The risks with CCX that do need to be considered include the expectation that oil supply will outstrip demand this year, which could pressure the Canadian, Norwegian and Russian currencies, or over 37 percent of the ETF’s weight. Additionally, Australia, another 12.4 percent of CCX’s weight, could again pare interest rates when the Reserve Bank of Australia meets early next month.
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