U.S. Dollar Strengthens In 2020: ETFs To Gain/Lose
Zacks Investment Research | Jan 20, 2020 01:45AM ET
Despite a dovish Fed, the greenback has been steady in recent trading with about 1% year-to-date gain in Invesco DB US Dollar Index Bullish Fund eight-month high in January.
Then there was the signing of the U.S.-China phase-one trade deal. Several global equity indexes were at all-time highs. This, in turn, led to a spike in U.S. treasury yields. As a result, the U.S. dollar hit an eight-month high against the yen.
Given the still-weak economic conditions in developed markets, the bullish trend in the greenback is expected to continue, at least in the near term.
ETFs to Buy
So, investors looking to play the strengthening U.S. dollar could consider the below-mentioned ETFs:
Dollar
The dollar strength can sure be played with UUP and WisdomTree Bloomberg U.S. Dollar Bullish Fund (Top & Flop Currency ETFs of 2019 ).
Small Caps
Since small caps are closely tied to the U.S. economy and do not get affected by a rising dollar due to their limited foreign exposure, iShares Russell 2000 Growth ETF (5 Small-Cap ETFs Beating S&P 500 in 2020 ).
Dollar-Denominated Bond ETFs
Investors seeking EM exposure amid a strong dollar can consider dollar-denominated EM bond ETFs. These funds invest in sovereign debt from a variety of emerging nations via U.S. dollar-denominated securities. Notably, the debt route is less risky than equities. Moreover, most emerging markets have low debt levels compared to developed countries. iShares J.P. Morgan USD Emerging Markets Bond ETF (ASX:EMB) is one such ETF. The fund yields 4.49% annually.
Currency-Hedged Japan
The global market rally has been weighing on safe-haven asset, Japanese yen. Japan's economic growth is expected to decelerate moderately in 2020, as a combination of consumption tax hike and sluggish global economy may deal a blow to DXJ should do well.
ETF to Sell
Inverse Dollar Fund
Needless to say, if dollar is rising, a short position on the currency would result in negative returns. Invesco DB US Dollar Index Bearish Fund (UDN ) should thus be avoided.
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