U.S. Dollar Index Fund Could Retreat, Boosting International and Mega-Cap Stocks
Brian Gilmartin | Jun 09, 2023 03:18AM ET
This daily chart of the Invesco DB US Dollar Index Bullish Fund (NYSE:UUP) was sent to me about a month ago by a technician.
He knows I like International and Non-US asset classes heading into 2023.
As readers can see, it looks like the UUP is set to roll over after a decent run since March.
Looking at long-term returns:
Here’s a table posted a few times on this blog, but with annual returns updated as of 5/31/23. What interests me is the low 10-year and 15-year returns for the majority of the different ETFs.
Oakmark International Fund Investor Class and iShares ACWI have the best 15-year returns of the pack. The iShares MSCI ACWI ex U.S. ETF (NASDAQ:ACWX) has a 15-year return like all the rest.
Emerging markets and Non-US have been totally out of favor since 2006 – 2007. Back then, China was growing 15% a year and was driving a lot of the “excess return” as the S&P 500, and Nasdaq were totally flat.
Compare the international and Non-US returns for the 10 and 15-year periods to US indices for 10 and 15-year returns:
In the late 1990’s the difference between the S&P 500 and the Nasdaq was more “binary” – the S&P 500 and the Nasdaq and large-cap growth were clear winners, and everything else lagged badly.
Clients' largest non-US weightings:
- Oakmark International (OAKIX): 6% weight;
- Emerging markets ex-China (EMXC): 3% weight;
- Vanguard FTSE All-World Ex-US: small weight;
- Vanguard FTSE Developed Markets: small weight;
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Currently, the direct Non-US and International investments are between 10% and 12% of clients' total holdings.
If the dollar does break down further here, it’s likely the weight will be raised.
Looking at the first spreadsheet under the “long-term returns,” the 5-year returns are shockingly bad. That’s got to be good, right?
One last chart:
After China clipped Jack Ma and sent him into hiding, all of the clients Vanguard FTSE Emerging Markets Index Fund ETF Shares (NYSE:VWO) was immediately sold, and the iShares MSCI Emerging Markets ex China (NASDAQ:EMXC) was purchased.
This EMXC chart is testing or bumping its 200-week moving average. A trade up and through $52 – $53 on decent volume would be a very good signal that the Emerging Markets Ex-China are back.
Top 10 Holdings as of 5/31/23:
- Microsoft (NASDAQ:MSFT): +37.5% YTD
- Blackrock (NYSE:BLK) Str Inc Opp: +1.5% YTD
- JP Morgan Income Fund: +1.99% YTD
- Oakmark International: +10.5% YTD
- SP 500 equal-weight: -0.67% YTD
- JP Morgan (JPM): +2.7% YTD
- Schwab Money Market:
- Amazon (NASDAQ:AMZN): +43.5% YTD
- EMXC: +6.0% YTD
- Barclay’s Agg: +2.64% YTD
- Charles Schwab (NYSE:SCHW): -36.1% YTD
- SPY: +9.68% YTD
- Alphabet (NASDAQ:GOOGL): +39.26% YTD
- Nasdaq 100: +30.89% YTD
That’s actually the top 14 holdings, but the 4 bond positions (actually 5) are disclosed as well. Schwab (SCHW) is the big drag on returns YTD, and the SP 500 equal-weight isn’t really contributing, but the mega-cap positions, after being a drag in 2022, are now contributing once again.
h2 Conclusion/h2The UUP is worth watching here to see if it reverses and breaks the downward trendline and finishes back above its 200-day moving average or if it continues to head south and provides a little tailwind to international asset classes and mega-cap tech names which were drilled with “constant currency” comparisons to the dollar in 2022.
You don’t hear about this much, but I thought this was a timely blog post on the technology’s exposure to the strong dollar in 2022.
Will have the standard earnings update this weekend.
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