A Surprising Post-Brexit Currency ETF Idea

A predictable result of last week’s stunning decision is that, at least in the near-term, investors are likely to bolster their affinity for safe-haven assets.

At the currency level, that can include exchange traded products such as the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which 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.

The red hot CurrencyShares Japanese Yen Trust (NYSEArca: FXY) is also another likely beneficiary of investors’ desire to embrace safe currencies, particularly as market participants bet on weakness ahead for the British pound and euro.

Emerging markets currencies and the WisdomTree Emerging Currency Strategy Fund (NYSEArca: CEW) probably will not be the first currency ideas to come to mind for the risk averse, but some market observers see post-Brexit opportunity with select developing world currencies.

CEW tracks the U.S. dollar against the Mexican Peso, Brazilian Real, Chilean Peso, Colombian Peso, South African Rand, Polish Zloty, Russian Ruble, Turkish New Lira, Chinese Yuan, South Korean Won, Indonesian Rupiah, Indian Rupee, Malaysian Ringgit, Philippine Peso and Thai Baht.

Related: Are Dollar ETFs Ready to Rally?

“These are rates markets, with obvious currency repercussions. Hedge funds entered the week of the referendum vote very flat in terms of positioning, with maybe a few longs in the emerging market high yield sector (South African rand (ZAR), Turkish lira (TRY), Brazilian real (BRL) and Indian rupee (IDR)). Real money stayed very quiet in terms of new flows in the weeks preceding the vote. That engineered a reasonably flat environment in both emerging market rates and currency,” according to a Citigroup note posted by Dimitra DeFotis of Barron’s.