ProShares Launches Leveraged Australian Dollar ETFs - ETF News And Commentary
July 20 2012 - 12:01PM
Zacks
ProShares, the Maryland-based ETF issuer best known for its
leveraged and inverse ETFs is back launching more funds just one
week after it debuted two triple leverage products targeting the
financial space. This time, the company is expanding into the
leveraged currency market with ETFs tracking both the 2x and -2x
return of the U.S. dollar price of the Australian dollar in a
single day.
The launch of ProShares’ double long fund, the Ultra
Australian Dollar ETF (GDAY) and the firm’s double short
fund, the UltraShort Australian Dollar ETF (CROC),
not only have some of the best ticker symbols in the market, but
help to expand the company’s lineup in the currency space to seven
funds overall. Investors should also note that both look to charge
investors 95 basis points a year in fees and will implement a daily
rebalancing mechanism.
This daily rebalancing means that if investors are holding a
position in GDAY or CROC over long time periods, the return may
deviate from what investors are expecting. This is largely due to
the impact of daily compounding over long periods of time, a factor
that can be especially prevalent when the Australian dollar isn’t a
defined trend but is instead oscillating back and forth from day to
day (read Understanding Leveraged ETFs).
Still, as long as investors keep this in mind, they can use
either of these products to make a play on the Australian dollar
with leverage. In fact, CROC and GDAY are the only leveraged
products in the currency space that are targeting the Australian
dollar, and are just the seventh and eighth currency ETFs that
employ a leveraged approach on a single currency overall.
How to use CROC and GDAY
Either of these products can be used to make a bet on the
increasingly in-focus Australian economy. The country is relatively
isolated from many Western issues and, is instead, increasingly
tied to the economic health of China and other major developing
markets (read Australia ETFs: a Developed Market Play on Asian
Growth).
This is largely due to Australia’s impressive commodity prowess
especially in the base metals and energy product categories. Thanks
to these key goods, China is now the destination for roughly
one-fourth of Australia’s exports, while India and South Korea
account for another 15% as well.
With these commodities, Australia finds itself in a relatively
favorable economic condition, as the GDP is still growing,
unemployment is low compared to other Western nations, and public
debt is still moderate at around 30% of GDP (see Australia Bond ETF
Showdown).
However, the robust nature of the Australian economy, coupled
with an impressive central bank discount rate above 4%, has led to
huge inflows into the Aussie markets in a variety of sectors. Some
now fear a property bubble in the country, but it remains to be
seen if this will fizzle out or implode like we have seen in the
American market.
One thing is for sure though; the Australian dollar has been a
huge winner over the past few years, crushing the performance of
many of the other globally traded currencies. The Aussie dollar has
actually added almost 40% against the U.S. dollar since the crash
in 2008, suggesting that the currency is certainly prone to
volatility, but it can also be a place to capture big gains in the
currency market (see Developed Asia Pacific ETF Investing 101).
Given the somewhat high historical volatility of the Australian
dollar compared to other currencies, this group of leveraged
products could see some interest from hedgers and traders alike.
This could be especially true if we see similar performance out of
the Aussie currency in the months ahead or if China faces a severe
slowdown, making GDAY or CROC excellent ways to bet on any
important moves in these key markets both up and down.
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(CROC): ETF Research Reports
(GDAY): ETF Research Reports
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