ETF Securities unveils triple leveraged currency ETCs

ETF Securities has launched 16 ETCs providing triple long and short exposure to currencies.

The firm says the range of triple leveraged ETCs, listed on the London Stock Exchange, is the first of its kind in Europe.

The products provide the leveraged exposure by tracking triple long and short versions of the MSFC indices, created by Morgan Stanley.

ETFS says the ETCs are also at least 100% collateralised and the maximum possible loss is the value of the initial investment.

The products work by rebalancing on a daily basis, meaning they aim to deliver three times the daily respective index return. When held for periods longer than one day, the returns are path dependent, meaning performance can diverge from being three times leveraged.

As a result, the ETCs can offer compound returns in trending markets, but will probably under-perform in volatile, directionless markets.

ETF Securities director of third party distribution Neil Jamieson says: "The triple long and triple short currency ETCs can be used by investors both to hedge and to capture market trends."

For example, a UK investor holding US equities earlier in the year, who may be concerned about the possibility of further quantitative easing and potential weakening of the US dollar, could hedge against this risk by taking 15% out of US equities and allocating it to the ETFS 3x Short USD Long GBP.

ETFS says this would allow the investor to generate a positive return, relative to a negative return had the full weighting to the US market been kept, and would have improved the overall risk-return profile of the portfolio.

Jamieson says given the historically low levels of volatility on currency pairs, the triple currency ETCs can prove to be a powerful vehicle to capture market trends.

He says the triple long Australian dollar short US dollar version of the MSFXSM index appreciated nearly 850% in the period from January 2002 to October 2010, based on simulated data.

Despite the sharp reversal in 2008, this 850% appreciation shows how leveraged exposure can deliver exceptional returns in a trending market.