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Currency basket Exchange Traded Products: a new investment option for corporate treasury?

Currencies don’t behave like the traditional asset classes, but fund managers argue that an allocation to a currency basket as part of a multi-asset portfolio can be a useful diversification play and reduce overall risk .

Investor interest in centrally cleared, exchange-traded financial products continues as leading German financial trading venue, Deutsche Borse, has announced that it has extended its Exchange Traded Products (ETP) range. The Frankfurt-based trading venue has issued five new Exchange Traded Notes (ETN), the listed instruments will offer investors access to foreign currency markets via currency baskets. 

The new ETNs were issued from the ETF Securities product range and were listed on the exchange’s trading platform on Monday the 14th of July. The Press Release gave more details:

  • the first tactical currency basket offered as either long or short, is a Morgan Stanley index which tracks the performance of the euro against G10 currencies. Morgan Stanley index which tracks the performance of the euro against G10 currencies - a tactical currency basket offered as either long or short 
  • the second tactical currency basket, which is also offered as long or short, is a Morgan Stanley index which tracks the performance of currencies whose countries heavily depend on the export of commodities. The basket contains the Australian dollar, New Zealand dollar, Norwegian krone and the Canadian dollar. These four currencies are generally known as commodity currencies
  • the ETNs covered one strategic basket, the strategic currency basket is based on four separate strategy components that track different investment themes within the currency sector. This is also a Morgan Stanley index which identifies and realises yield opportunities for G10 currencies against the US dollar.

Overall, the new issuance allows investors to connect to liquid FX markets

Deutsche Borse

Deutsche Borse, the trading venue that operates the Xetra trading platform, first launched ETNs in 2006. ETNs are defined as financial instruments or debt securities that are based on the performance of underlying reference indices. They differ to other ETPs, e.g Exchange Traded Funds (ETF) or Exchange Traded Commodities (ETC) that are index or asset class-based.

Deutsche Börse’s Xetra trading platform is the largest for ETPs in the Eurozone area, the exchange places the asset classes ETCs and ETNs in the product class ETPs. The new instruments take the exchange’s portfolio to 135 ETNs, accompanying its vast range of ETFs at 1040 and ETCs at 225.

ETN growth

ETNs have grown substantially since inception, a recent Bloomberg survey in December 2013 stated that holdings of ETNs have shot up to over $22 billion. Deutsche Borse claim that ETNs provide investors with a number of advantages including, enabling them to make cost conscious investments in a new asset class as well as further diversify their portfolios.

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