6 thoughts on “Candidates for the Portfolio Reshaping”

1. Whatever you do, don’t buy and hold DUG. These double inverses dramatically underperform because of the compounding effects.

2. Kieran, that one is a mistake. Hand transcribing 330 tickers has great potential for error.

3. Regarding your existing portfolio, you’ve sometimes held FXF and other Proshares Currency funds. Based on the following excerpt, does it seem to you that these funds are too dependent upon the solvency of JP Morgan? “The Trust has no proprietary rights in or to any specific Swiss Francs held by the Depository and will be an unsecured creditor of the Depository with respect to the Swiss Francs held in the Deposit Accounts in the event of the insolvency of the Depository or the U.S. bank of which it is a branch. In the event the Depository or the U.S. bank of which it is a branch becomes insolvent, the Depository?s assets might not be adequate to satisfy a claim by the Trust or any Authorized Participant for the amount of Swiss Francs deposited by the Trust or the Authorized Participant, in such event, the Trust and any Authorized Participant will generally have no right in or to assets other than those of the Depository. In the case of insolvency of the Depository or JPMorgan Chase Bank, N.A., the U.S. bank of which the Depository is a branch, a liquidator may seek to freeze access to the Swiss Francs held in all accounts by the Depository, including the Deposit Accounts. The Trust and the Authorized Participants could incur expenses and delays in connection with asserting their claims. These problems would be exacerbated by the reality that the Deposit Accounts will not be held in the U.S. but instead will be held at the London branch of a U.S. national bank, where it will be subject to English insolvency law. Further, under U.S. law, in the case of the insolvency of JPMorgan Chase Bank, N.A., the claims of creditors in respect of accounts (such as the Trust?s Deposit Accounts) that are maintained with an overseas branch of JPMorgan Chase Bank, N.A. will be subordinate to claims of creditors in respect of accounts maintained with JPMorgan Chase Bank, N.A. in the U.S., greatly increasing the risk that the Trust and the Trust?s beneficiaries would suffer a loss.”

4. Eric, that’s an interesting truffle that you have dug up. I’m not using any of the Proshares currency funds now, but I have in the past. Unlike ETNs, ETFs are not pricing in counterparty risk — this raises the interesting issue of whether they should trade at a discount.

   It also points to some sloppiness on my part… I assumed that they invested in high-quality short-term foreign currency instruments that they took custody of (if only electronically), and that seems not to be the case.

   Do you have a URL on this pointing to the prospectus as a whole?

5. wait, got it.

   http://www.currencyshares.com/Content/pdf/FXF-Prosp.PDF

6. I copied that particular passage from page five of the most recent 10-K filing. I used to own them myself until I read that. If something happens to JP Morgan (and it just might), the status of these popular currency ETFs as unsecured creditors would be front page news.

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