The U.S. dollar has been a star performer in recent months, so much so that Wall Street is already abuzz about the adverse impact the stronger greenback is going to have on third-quarter earnings reports, which will soon be trickling in.
While the strong dollar is seen as crimping some exchange traded funds, particularly those offering exposure to dollar-sensitive sectors, such as the Energy Select Sector SPDR (NYSEArca: XLE) and the Industrial Select Sector SPDR (NYSEArca: XLI), some ETFs have been loving life with a rallying greenback. [Sector ETFs Hoping for Dollar Reversion]
Even with Monday’s 1.1% decline, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) is up 7.4% since the start of the third quarter. UUP is the most recognizable dollar ETF due in part to the fact that is the ETF proxy for the U.S. Dollar Index. The U.S. Dollar Index tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. [Another Boost for Dollar ETFs]
The WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU) is also coming of age as the dollar finds firmer footing. USDU, which debuted in December 2013, is showing investors there are advantages to active management with currency funds.
USDU is well positioned to benefit from diverging developed market monetary policies, particularly at the top of the ETF’s lineup. The Eurozone and Japan, home to central banks that have overtly signaled commitments to lower interest rates and weaker currencies, combine for 50.4% of USDU’s weight.
New Zealand, the one developed market that has raised rates this year, is not found among USDU’s 10 country exposures, but the fund does have a 6.2% weight to Australia. While the Reserve Bank of Australia has recently paused its rate-cutting scheme, rates there are at record lows and RBA continues to view the Aussie as overvalued. [Embracing Australia ETFs]
Faltering oil prices predictably help the dollar because commodities are denominated in the U.S. currency, but the reverse is true for so-called commodity currencies like the Aussie and Canadian dollar. Falling oil prices have pressured the loonie, sending the CurrencyShares Canadian Dollar Trust (NYSEArca: FXC) down 4% over the past 90 days. That suits USDU just fine because the ETF has an 11.5% weight to the loonie, which is 240 basis points the U.S. Dollar Index’s to the same currency.
Though still in its rookie year, USDU has found some fans. The ETF has added $22.4 million, or nearly 39% of its 57.7 million in assets under management this year.
WisdomTree Bloomberg U.S. Dollar Bullish Fund
ETF Trends editorial team contributed to this post.