More currency ETFs hit US

The Wisdom Tree Dreyfus New Zealand dollar fund and the Wisdom Tree Dreyfus South African rand fund were issued by New York-based Wisdom Tree Investments. They add to the investment manager's five existing currency-linked ETFs, which were the first to be listed in the US market in May.

To date, banks such as Barclays Capital and Morgan Stanley have listed currency-linked investment products in the form of exchange-traded notes (ETNs). While ETNs are structured as debt securities, ETFs are traded as equity in currency funds. Issuers, Rydex for example, also offer exchange-traded products, but these are structured as trusts.

The market for ETFs in the US expanded by 68% in 2007, with 601 products, up from 357 in 2006, according to the Securities and Exchange Commission. Assets under management (AUM) rose by 42% to reach $580 billion at the end of last year.

Bruce Lavine, WisdomTree's president and chief operating officer in New York, said the manager launched the product to give investors better access to currencies with returns that cannot be obtained by holding a bank account or buying futures.

"New Zealand and South Africa are particularly interesting countries as they are currently among the highest-yielding currencies in the developed and developing markets respectively," he said. The addition of the two ETFs brings WisdomTree's total currency ETF AUM to about $373 million as of June 25.

Currency ETFs give investors exposure to changes in the value of a designated non-US currency relative to the dollar. They aim to earn money-market rates available to foreign investors in the specified country or region. ETFs track movements in the underlying currency one-for-one, with a 0.35-0.45% lag due to management fees.

"We had been working to gain clearance from the SEC for almost two years. We finally got the clearance and we were able to bring the first of these currency income ETFs to the market," said Lavine. The ETFs launched in May cover the yuan, rupee, real, euro and yen.

Wisdom's ETFs have attracted investors, including hedge funds and family offices, with approximately $350 million in assets in six weeks.