Carry Trade ETF Drops Short Dollar Position, Bets Against Euro

ETF Trends

PowerShares DB G10 Currency Harvest Fund (DBV) has rotated out of its short U.S. dollar position and into a short euro position. The ETF is designed to replicate the so-called carry trade in currencies.

“DBV had been short the US dollar since June of 2009. This is the first time the fund has been short the euro,” Invesco PowerShares said in a statement Tuesday.

Historically, currencies that are tied to higher interest rates tend to increase in value relative to those currencies with lower interest rates, explains Paul Weisbruch at Street One Financial. [ETF Chart of the Day: Currency Harvest Fund]

The ETF grants exposure to a basket of currency futures on G10 countries with the goal of exploiting the historical trend.

Morningstar analyst Timothy Strauts says DBV employs a “hedge-fund-light” strategy.

The ETF provides a version of the carry trade, “one of the oldest trading strategies in finance, in which an investor borrows money in a currency with low interest rates and invests it in another with higher interest rates,” he said. “PowerShares DB G10 Currency Harvest and its underlying index utilize 2 times leverage, as it shorts the three lowest-yielding G10 currencies for the total notional value of its assets and goes long in the three highest-yielding currencies for the notional amount of its assets.”

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Table source: Invesco PowerShares

PowerShares DB G10 Currency Harvest

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