WisdomTree launched 4 new currency ETFs this week, adding to the universe of currency funds that include offerings from Barclays iPath, PowerShares and Rydex.
Do we need more currency ETFs? Yes, here’s why.
The current currency fund offerings from iPath come in the form of an ETN or Exchange Traded Note. Currency ETNs have some potential drawbacks relative to ETFs including exposure to the sponsor’s credit risk, lack of current income and tax treatment as debt instead of equity. See the iPath website for more information.
The PowerShares and Rydex products are in the form of a trust, but also lack current income generation and have similar tax considerations. See the PowerShares and Rydex websites for more information.
By contrast, the WisdomTree currency ETFs have a specific objective of generating current income reflective of foreign money market rates available to U.S. investors, as well as exposure to changes in the value of a specified currency relative to the U.S. dollar.
WisdomTree achieves the two goals by setting up the ETFs as a trust and investing either in non-U.S. money market securities, or in a combination of U.S. money market instruments and instruments that are designed to provide exposure to non-U.S. money market securities or rates. The securities purchased by the funds will be investment grade and short-term (90 days or less).
While income from the funds will be taxed as ordinary, capital gain distributions by the funds, if any, will be taxed as long-term capital gains. See the prospectus and consult with your personal tax advisor before investing.
The 4 new Wisdom Tree Dreyfus funds include (all NYSEArca):
The Japanese Yen Fund (JYF) will launch at a later date.
The Euro and Japanese Yen Funds intend to pay dividends quarterly. The Chinese Yuan, Brazilian Real and Indian Rupee Funds will pay dividends annually at the end of the year.
For more information, see the WisdomTree website.