PowerShares DB G10 Currency Harvest Fund ETF (DBV)

DBV was mentioned in October in a post comparing exchange-traded foreign currency products. In that post it was noted that DBV differs from the other foreign currency ETFs in that it is a synthetic carry trade instead of a synthetic long. The fund buys the three highest-yielding G-10 currencies and sells short the three lowest-yielding. The carry trade can be lucrative, and this ETF enables small investors to participate in the strategy by simply purchasing shares. The carry trade is the basis of many fortunes and back-testing of DBV’s underlying index does look promising. The index has generated returns beating the S&P but with a low .21 correlation to the S&P. One negative feature, though, is that DBV generates no cash flow and it will not pay a dividend. This does not necessarily rule it out as an investment, but in my book DBV does start out with one strike against it.

DBV just started trading in September. The price trend began well, but it has gone sour and the share price is back where it started. Apparently a couple of the carry trades did not work out as expected. This method of trading currencies is not without risk. The DBV price chart shows the virtue of waiting to trade a new stock until there is enough data to see where it is really going. In my opinion, that means waiting at least ten months – enough to calculate a 200 day moving average.


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