Barclays is expanding its line of exchange traded notes (ETNs) with three new currency-related filings. Despite the IRS ruling that these notes should be taxed as debt, and that gains from interest income and currency appreciation will be taxed as regular income tax, Barclays Capital went forward with the launch.
The new ruling will put ETNs at a slight disadvantage because noteholders will be required to pay taxes on implied interest each year. Matthew Hougan for Index Universe says the new ETNs are:
- Asain and Gulf Revaluation: Gives exposure to five Middle Eastern and Asian market currencies that are tied to the U.S. dollar and comes with a 0.89% expense ratio.
- Barclays GEMS Strategy: GEMS stands for global emerging markets strategy. The fund is a 15-currency money market account that covers five geographic zones, including Eastern Europe, Africa and Latin America. It has a 0.89% expense ratio.
- The Carry Trade ETN: The carry trade involves borrowing money in low-yielding currencies and investing it in high-yield currencies. This fund involves using long and short forward positions in G10 currencies to execute the trade. Among others, the index has holdings in the Norwegian krone, New Zealand dollar, Swiss Franc and Australian dollar. The fund has an expense ratio of 0.65%.
ETNs trade like stocks or exchange traded funds (ETFs), but they’re debt instruments, meaning that investors are exposing themselves to risk that the issuing bank will go bankrupt.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.