Db Currency Harvest
GLOBAL MARKETS CURRENCIES & COMMODITIESdb Currency HarvestDeutsche Bank Global Currency Harvest IndexDeutsche Bank Balanced Currency Harvest IndexDeutsche Bank G10 Currency Harvest Index
Introducing the Harvest IndicesThe Deutsche Bank Currency Harvest Indices trackthe performance of a portfolio that systematicallyinvests in a diversified basket of high yieldingcurrencies, funded by going short a diversifiedbasket of low yielding currencies.The indices provide atransparent way of gainingexposure to the world’scurrency markets withoutneeding to make paymentsin many differentcurrencies. The indices arequoted in excess returnterms representing thereturn from an unfundedinvestment. Each index isquoted in EUR or USDnotional.The three variants of the strategy are:1.Global:Pure global carry2. Balanced:The pool of currencieseligible for inclusion in theindices is set out by regionbelow:IG10: USD, EUR, JPY,GBP, CHF, AUD, NZD,CAD, NOK, SEKIAsia: KRW, SGD, TWDILatin America: MXN, BRLIEmerging Europe andAfrica: TRY, PLN, HUF,CZK, ZARThis is the benchmark CurrencyHarvest Index. The strategy isto invest in the 5 highest yieldingcurrencies and to go short the 5lowest yielding currencies regardlessof their geographic region.The strategy is to invest in the2 highest yielding G10 currencies,and then the 3 remaining highestyielders from the whole currencypool. Additionally the strategygoes short the 2 lowest yieldingG10 currencies and short the3 remaining lowest yielders.Constrained carry: maintains a balanced exposurebetween developed and EM markets3. G10:The strategy is to invest in the3 highest yielding G10 currenciesand to go short the 3 lowestyielding G10 currencies.Pure G10 carryInvestment Rationale:IGlobal access to the currency asset classIGood liquidity and transparent indexconstructionIDiversified exposureISystematic approach to maximise carry
Index ConstructionAll the Currency Harvest indices are calculated usingthe same generalised methodology which is designedto exploit the ‘forward bias’ in a simple and transparentmanner. Whilst there are more complicated approachesone could take, the aim was to create rules that wouldcapture the principle over the medium term rather thanin the specific set of circumstances that would havemaximised returns over the backtesting period.Roll Window Feature:Basic Methodology:IRank currencies by3m Libor rates fromtransparent fixing pagesto select current high andlow yielding currenciesfor each strategyIInvest in 3 monthforwards - buy equalamounts of each selectedhigh yielding currency,and sell equal amountsof each selected lowyielding currencyISpot and forward ratesused in the indexcalculation are mid ratesas per reliable andtransparent third partyfixing pagesIRe-balance quarterly,investing in 3 monthforwards accordingto the latest 3 monthLibor rankingsIDaily index closing levelsare published to DBIQ andBloomberg in EUR andUSD denominationsIThe indices are quoted inexcess return terms netof transaction costsITo prevent front-runningin the market there is amechanism built in to theindices which is designedto enhance returnsIA Roll Window is definedas the 5 days in the weekof the third Wednesdayin each quarterITwo out of five possibleRoll Dates are selectedat random before theRoll Window startsIHalf of the position isrolled at the 3m forwardrate as of the first selectedRoll Date. The second halfis rolled at the 3m forwardfixing on the secondRoll DateIThese dates are notreleased to the widermarket until the end ofthe Roll Window periodTimeline for re-balancingWedObservation Date(IMM – 5 days)Currenciesare rankedThuFriTwo RollDates withinthe RollWindow aredeterminedMonTueWedIMMThuRoll WindowFriMonThe twochosenRoll Datesare madepublic
Historical CompositionThe historical composition of each index betweenSeptember 2000 and October 2007 is represented below.Global and Balanced:Position rotation has been much more varied as one would expect froma more diversified index. NZD, TRY, BRL and ZAR have been the core longs,with JPY and CHF and SGD being the predominant shorts.Global100%80%60%40%20%0%AUD BRL CAD CHF CZK EUR GBP HUF JPY KRW MXN NOK NZD PLN SEK SGD THB TRY TWD ZAR USDBalanced100%80%60%40%20%0%AUD BRL CAD CHF CZK EUR GBP HUF JPY KRW MXN NOK NZD PLN SEK SGD THB TRY TWD ZAR USDG10:Long positions have been predominantly in NZD and AUD.CHF and JPY have been the core shorts.USD, NOK and SEK have spent time on either side.100%80%60%40%20%0%AUDCADCHFEURGBPJPYNOKI Percentage of time as a selected ‘long’ currencyI Percentage of time as a selected ‘short’ currencyNZDSEKUSD
Forward Bias in the World’sCurrency MarketsCurrency forwards arederived from non-arbitragearguments based onnominal interest rates.Research shows thatcurrency forwards maybe a biased predictor offuture spot. In other wordsstatistical analysisdemonstrates that highyielding currencies tend toover-compensate investorsfor depreciation risk.Historic Performance of the IndicesThe historic performance of the Deutsche Bank CurrencyHarvest indices is shown on an excess return basis netof costs.Performance of the Currency Harvest Indices:Excess Return September 2000 – October 2007300Balanced Currency HarvestGlobal Currency HarvestG10 Currency Harvest250Eg:200IICurrency 1 has a nominalyield of 10%Currency 2 has a nominalyield of 5%,IThe 1 year currencyforward has to be pricedsuch that it is expectedCurrency 1 willdepreciate by 5% in1 year’s time otherwisean arbitrage wouldbe possible.Historically there has beena bias that Currency 1tends not to depreciateas much as the 5% thatthe forward has priced -06Sep-07Source: Deutsche BankThe effective annual return over the period from the BalancedCurrency Harvest was 15.22%. The Global currency harvestreturned 12.07% and the G10 Currency harvest returned 8.02%.The Sharpe ratios for the Balanced Currency Harvest, GlobalCurrency Harvest and G10 Currency Harvest over the period were1.60, 1.23 and 1.07 respectively. (The returns are in USD termsfrom an investment made on the 18th of Spetember 2000 andheld until the 3rd of October 2007. These returns are quoted onan annual effective basis).
Further InformationFor further information,please contact yourDeutsche Bank salesrepresentative in thefollowing locations:Daily index closing levelsare available from ourwebsite:http://index.db.comAsia / PacificSydney 61 282583610Singapore 65 68831010Tokyo 81 351564333EuropeLondon 44 2075454950Frankfurt 49 6991032589Or, for an on-line interactiveflash demo, go towww.autobahnfi.db.comAmericasNew York 1212 2508080Or alternatively on Bloomberg:Index NameDB Currency Harvest G10 (EUR)DB Currency Harvest G10 (USD)DB Currency Harvest Global (EUR)DB Currency Harvest Global (USD)DB Currency Harvest Balanced (EUR)DB Currency Harvest Balanced (USD)Bloomberg TickerDBHVG10E Go DBHVG10U Go DBHVGEUI Go DBHVGUSI Go DBHVBEUI Go DBHVBUSI Go Index Sponsor:Deutsche Bank AG Londonwww.db.comDisclaimerThe information herein is believed to be reliable and has been obtained from sourcesbelieved to be reliable, but we make no representation or warranty, express or implied,with respect to the fairness, correctness, accuracy, reasonableness or completenessof such information. In addition we have no obligation to update, modify or amend thispublication or to otherwise notify a reader in the event that any matter stated herein,or any opinion, projection, forecast or estimate set forth herein, changes orsubsequently becomes inaccurate.The indices illustrated are based on material we believe to be reliable; however, wedo not represent that the indices are accurate, current, complete, or error free.Assumptions, estimates and opinions contained in the indices constitute our judgementas of the date of the material. The past performance of an investment is no guaranteeof future returns. Its value may go down as well as up and you may not get back theamount you have originally invested.GM1388 OCT 2007We are not acting and do not purport to act in any way as an advisor or in a fiduciarycapacity. We therefore strongly suggest that recipients seek their own independentadvice in relation to any investment, financial, legal, tax, accounting or regulatoryissues discussed herein. Analyses and opinions contained herein may be based onassumptions that if altered can change the analyses or opinions expressed. Nothingcontained herein shall constitute any representation or warranty as to futureperformance of any financial instrument, credit, currency rate or other market oreconomic measure. Furthermore, past performance is not necessarily indicative offuture results.This advertisement has been approved and/or communicated by Deutsche Bank AGLondon for information purposes only. It is not an offer to sell, or a solicitation of anoffer to buy, any security, nor to enter into any agreement or contract with DeutscheBank AG and/or affiliates. The investment(s) or investment service(s) which are thesubject of this advertisement are not available to private/retail customers as definedby local securities regulations. The services described in this advertisement areprovided by Deutsche Bank AG or by its subsidiaries and/or affiliates in accordance withappropriate local legislation and regulation. Deutsche Bank Securities, Inc., a memberof the NYSE, NASD and SIPC, a subsidiary of Deutsche Bank AG, conducts investmentbanking and securities activities in the United States. Copyright 2006 Deutsche Bank May 2006 Deutsche Bank
Currency Harvest was 15.22%. The Global currency harvest returned 12.07% and the G10 Currency harvest returned 8.02%. The Sharpe ratios for the Balanced Currency Harvest, Global Currency Harvest and G10 Currency Harvest over the period were 1.60, 1.23 and 1.07 respectively. (The returns are in USD terms
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