A Fund for 'Black Swan' Investors

The biggest risk with PGD might be Barclays Bank. As an ETN, it is a debt obligation of a bank and, because of that, faces similar problems including writedowns, impairments and a capital-raising plan that has caused controversy among shareholders. It may be the structure of the PGD product poses a greater risk than the strategy of the product.

Barclays' fate is far from certain, but I would note that if it were to fail, the Barclays Global Investors unit, or BGI, which does not have to write down anything, would be a highly sought-after asset. It is BGI that manages the ETFs and ETNs. One layer of complexity to this theory is that PGD is actually not a part of BGI. It is one of several ETNs managed by Barclays Capital. In the event of a restructuring, it would not be a surprise to see PGD made a part of BGI.

A thing to watch out for is low trading volume and a small asset base, about $90 million at last check. While not ideal, it would not be difficult for the typical individual investor to execute a trade for a couple hundred shares. One last point on risk to Barclays is that it is very likely that Barclays' fate will be resolved before any of the underlying countries in PGD remove their peg to the U.S. dollar.

Generally speaking, funds like PGD relying on a particular outcome (and do nothing in the mean time), or more broadly, alternative-return products like the Dover Long Short Sector Fund(DLSAX Quote), stand to become more important for investors who realize they do not want the volatility that goes with full participation in the stock market or if returns from equities continue to be sub-standard for longer than people expect.

Lastly, I'll add that moderation is important with any product like this. The consequence of PGD somehow trading away from its net asset value because of bankruptcy fears is much less if it only has a 2% portfolio weight as opposed to a 10% weight.