Two New Currency ETFs

Today Deutsche Bank and Amvescap unit PowerShares Capital Management LLC launched a pair of exchange-traded funds (ETFs) in the American Stock Exchange, which allow investors to make money from the movement of the U.S. dollar against a set of foreign currencies:
PowerShares DB U.S. Dollar Bullish Fund (UUP) &
PowerShares DB U.S. Dollar Bearish Fund (UDN) .

These new ETFs allow investors to play currency markets around the world without opening a futures account. These are designed to take long or short positions in the "Deutsche Bank U.S. Dollar Index Futures Index -- Excess Return," which follows the movement of the U.S. dollar against a basket of 6 major currencies: Euro, Japanese Yen, British pound, Canadian dollar, Swedish Krona and Swiss Franc. The "dollar bullish" ETF (UUP) will make money when the dollar rises against global currencies, while the "bearish" fund (UDN) will profit when the U.S. dollar falls.

The ETFs have expense ratios of 0.55%, but that will be offset by the yield from the fixed-income securities they hold as collateral for the futures contracts. Aside from the movement of the futures contracts, investors are expected to earn the yield on 3-month Treasury bills (current yield is about 5%). But, like all ETFs, they also have the disadvantage of the extra expenses of broker commissions for any transaction.

Last year, the company launched the PowerShares DB G10 Currency Harvest Fund (DBV) which is designed to take long futures positions in the 3 foreign currencies with the highest interest rates, and short the 3 currencies with the lowest yields (read our posting on DBV)

In December 2005, Rydex Investments introduced a family of 8 ETFs tracking the currency of single countries (See our past posting on Rydex ETF).

"Healthshare" ETFs

In the State of the Union address in January, President Bush outlined a major plan to reduce the number of Americans not covered by health insurance. The portion of the health-care industry in national economy has doubled over the past decade to about 16% of GDP, and if and when President's plan is implemented, this sector would be bound to receive a major boost.

The best way to invest is to purchase one of those health-care ETFs which are already in high demand:
iShares Dow Jones U.S. Healthcare (IHF),
Health Care Select Sector SPDR (XLV),
PowerShares Dynamic Healthcare (PTH),
Rydex S&P Equal Weight Health Care (RYH),
Vanguard Health Care ETF (VHT).

There are also some more focussed ETFs for investment in pharmaceuticals and biotechnology. But nothing can compete in 'narrow-ness' with 5 new ETFs introduced by the New York-based financial-services firm XShares Advisors LLC on the New York Stock Exchange in January. These ETFs are dubbed "healthshares" and each HealthShares basket has about 22 to 25 stocks providing "narrow diversification" to the subsector:
HealthShares Cardio Devices (HHE),
HealthShares Diagnostics ETF (HHD),
HealthShares Emerging Cancer ETF (HHJ),
HealthShares Enabling Technologies ETF (HHV),
HealthShares Patient Care Services ETF (HHB).

These ETFs may most likely appeal to those who already speculate in healthcare stocks or who are already some sort of experts on 'details' of operation of these companies. However, for average investors, the HealthShares ETFs arrive with so much of narrow focus that the advantage of 'diversification' is almost lost. The investor really needs to get involved in researching the healthcare subsectors and companies on week-to-week basis (if not day-to-day) -- something they can almost forget after purchasing one of those broader-scope ETFs. Unless you are a healthcare-geek, we do not recommend such ETFs for your portfolio.

Commentary: Mortgage & Housing

The Federal Reserve kept the short term rate unchanged at 5.25% and also referred to "tentative signs of stabilization" in the housing market in its Wednesday statement. Investors are liking the fact that a strong 3.5% annualized growth in the economy occurred over the final quarter of 2006, while inflation moderated.

The Homebuilders' ETFs have started having a good run up -- We told you in our last week's posting to keep those under your watch. The National Association of Realtors reported today that the seasonally adjusted pending home sales jumped 4.9% in December, the largest gain in nearly three years. The pending home sales index was at its highest level since June and was down 4.4% compared with December 2005. The index increased in all four regions. Pending sales rose 8.1% in the Northeast, 5.3% in the West, 4.3% in the South and 3.2% in the Midwest. On a year-over-year basis, pending sales are down between 4% and 5% in all four regions.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage rose to 6.34% from 6.25% average last week. The rate was 6.23% one year back. The 15-year fixed rate averaged at 6.06% this week -- up from last week's average of 5.98%. At this time last year this rate was 5.81%.

The Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.04%, up from 6.00% average last week. The hybrid averaged 5.87% a year ago. One-year Treasury-indexed ARMs averaged 5.54%, up from 5.49% of last week. This rate averaged 5.33% a year ago.