With the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) down 3.7% over the past month, considering sector exchange traded funds that often respond positively to a strong greenback might seem nonsensical.
Then again, it would be unreasonable to expect the dollar to move up in a straight line nor should it be forgotten that, by historical standards, the current bull market is not old. It is probably in the middle innings to steal a baseball phrase. [Dollar Slide Worsens]
Said another way, the dollar’s recent pullback could be giving investors an opportunity to tactically revisit some industry and sector exchange traded funds that have penchants for outperforming as the greenback rises.
“Given the impact a strong dollar has on certain industries and sectors, investors seeking to position their portfolios for a strong dollar environment should be taking a close look at their domestic equity exposure,” said State Street Global Advisors Head of Research David Mazza in an email to ETF Trends. “Historically, the transportation, healthcare services and biotech sectors have performed very well in a rising dollar environment, as they tend to have a low percentage of foreign sales.”
There is something to the long transportation ETFs as the dollar rises thesis. For the one-year period ending May 6, UUP was up 17% while the SPDR S&P Transportation ETF (NYSEArca: XTN) and theiShares Transportation Average ETF (NYSEArca: IYT), the Dow Jones Transportation Average tracking ETF, were up 18% and 13.8%, respectively. [Alternative View of Transport ETFs]
However, it should be noted that IYT and XTN do not always need the dollar to rise to move higher themselves. As UUP has stumbled over the past month, IYT and XTN are up 0.6% and 1.45%, respectively.