Just last week we spoke about the U.S. Dollar trading at three year lows, and it reversed course quickly and violently, with UUP (PowerShares DB U.S. Dollar Index Bullish, Expense Ratio 0.50%) vaulting back above its 50 day MA, and for the time being, staying there.
Trading volume in the fund has been rather unremarkable however, and fund flows year to date are rather dormant ($+5 million).
This does not seem to be a function however of a lack of interest in trading or hedging the U.S. Dollar however, but more of a function of a relative disinterest in terms of overall assets under management when compared to say “Equity” or “Fixed Income” ETFs for example.
For UUP is still the largest Currency based ETP in the U.S. landscape, with about $668 million in assets under management currently, which is certainly not a number to scoff at, but it feels that there is still untapped, and huge potential still.
This growth could come from not only from investment managers that are already using ETFs for various asset class exposure in portfolios but also natural hedgers that may already be using currency futures strategies to hedge against adverse currency movements, like businesses with international operations for example.
So in a nutshell, the Dollar is moving all over the place lately, and UUP, UDN (PowerShares DB U.S. Dollar Index Bearish, Expense Ratio 0.50%), as well as 3X linked UUPT (PowerShares 3X Long U.S. Dollar Index Futures ETN, Expense Ratio 0.95%), and UDNT (PowerShares 3X Short U.S. Dollar Index Futures ETN, Expense Ratio 0.95) have gyrated accordingly, but with little to show in terms of an uptick of trading volume
or asset flows.
UDN for example is considerably smaller than UUP, with about $54 million in AUM, ranking it somewhere in the middle across all Currency based ETPs in terms of overall assets.
As we mentioned UUP being the largest with “only” $667 million in AUM currently, there is a pretty sharp drop-off in terms of asset size down the list for the next largest funds being EUO (ProShares UltraShort Euro, Expense Ratio 0.95%, $418 million in AUM), YCS (ProShares UltraShort Yen, Expense Ratio 0.95%, $367 million in AUM), FXA (CurrencyShares Australian Dollar Trust, Expense Ratio 0.40%), and FXC (CurrencyShares Canadian Dollar Trust, Expense Ratio 0.40%, $273 million in AUM), noting that EUO and YCS are inverse/leveraged funds.
FXF (CurrencyShares Swiss Franc Trust, Expense Ratio 0.40%) and FXE (CurrencyShares Euro Currency Trust, Expense Ratio 0.40%) have even lower AUM levels which is actually somewhat stunning especially being that FXE represents the Euro, with $258 million and $189 million respectively.
Worse, there are sixteen Currency based ETPs just sitting out there with less than $10 milllion in AUM, some with as low as $1 to $3 million in AUM and notably light daily trading activity. We believe there is large
potential for growth in the Currency ETP space as far as an increase in adoption and usage by a realm of different types of investors and portfolio managers, however the timing of this growth still remains uncertain.
PowerShares DB US Dollar Index Bullish Fund
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.
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