DB Launches Leveraged, Inverse Commodities ETNs
April 29, 2008
On the heels of issuing seven exchange-traded notes tied to gold and agriculture indexes to leapfrog the competition in leveraged and inverse exchange-traded notes, Deutsche Bank on Tuesday launched four more broad-based commodities ETNs.
But these also won't be your ordinary variety notes. They come in long, double-long, short and double-short versions in what Deutsche Bank is characterizing as the first such complete set to a broad-based commodities index.
Together, they move DB even further ahead of rivals such as ProShares in the race to come to market with leveraged and inverse ETNs.
"We are thrilled with the ongoing success of our commodity-linked investment products and pleased to offer investors convenient access to leveraged long and short commodity strategies," said Kevin Rich, managing director in Deutsche Bank's global markets investment products group, in a statement.
The new notes are linked to the Deutsche Bank Liquid Commodity Index and Deutsche Bank Liquid Commodity Index - Optimum Yield.
The group consists of:
As their names implies, the DB commodity double short ETNs give investors exposure to two times the monthly inverse performance of the benchmark Deutsche Bank Liquid Commodity Index. What's interesting is that they're also created to include tracking of a monthly Treasury bill index, which will be included in their returns.
Similarly, the DB commodity double long ETNs offer investors exposure to two times the monthly performance of the Optimum Yield version of the Deutsche Bank Liquid Commodity Index. But those performance profiles figure to be enhanced as well by the inclusion of a monthly T-Bill index's return.
Each of the four ETNs are senior unsecured obligations of Deutsche Bank. It will issue the securities in denominations of $25.
(Treasuries return will not be leveraged in the double up or double down funds; only the return of the futures contract will be leveraged.)
The fact that the notes are tied to the monthly return of the index is noteworthy. That differs from the way the popular ProShares and Rydex leveraged ETFs work, as those funds are linked to the daily return of their benchmarks. That sounds like a nominal difference, but it is not: Because of the impact of compounding, doubling the monthly return as opposed to the daily return should allow these notes (in most circumstances) to stick closer to the long-term price trends of the underlying index.
As we noted when DB first started introducing these ETNs, that difference could be important. ProShares has filed papers with the Securities and Exchange Commission to launch leveraged, inverse and inverse-leveraged ETFs tied to various commodities and commodity indexes, including products linked directly to gold bullion.
However, it has not received approval to launch these products yet in the U.S.
Deutsche Bank appears to have been able to move ahead of ProShares by using the ETN structure, which has a more streamlined approval process than ETFs.
The ETNs released earlier this year were the first ETNs launched directly by Deutsche Bank, although it offers a family of commodity exchange-traded funds in partnership with PowerShares.
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