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The U.S. dollar has been rising for a few weeks. It is now on its longest weekly winning streak since February. A Bloomberg gauge of the dollar rose to the highest level in more than a month after a stronger jobs report diminished rate cut bet hopes.
Investors seeking to make a play from this trend could consider ETFs such as Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) , WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU - Free Report) , iShares Russell 2000 ETF (IWM - Free Report) , iShares U.S. Aerospace & Defense ETF (ITA - Free Report) and iShares Currency Hedged MSCI EAFE ETF (HEFA - Free Report) .
The latest job data signals the strength of the U.S. economy, dialing back expectations of a rate cut. U.S. job growth jumped in May and wage growth accelerated. The economy added 272,000 jobs in May, above the Bloomberg expectation of 185,000 jobs, reflecting continued strong hiring in a range of sectors. Health care and social assistance led the job gains with 83,000. Leisure and hospitality, which includes restaurants and bars, added 42,000, and professional and business services added 33,000 jobs. The public sector, which added just 7,000 positions in April, rebounded with 43,000 gains.
Wage growth rose for the first time in months, though the unemployment rate rose from 3.9% to 4%, the highest since January 2022. Traders are no longer pricing in a rate cut before December.
A strong dollar attracts foreign money from investors seeking dollar-denominated returns, providing an edge to domestic-focused companies. Further, energy cost in America decreases with a stronger dollar, thereby lowering industrial costs, increasing profitability and propelling the overall economy.
Let’s now discuss the ETFs in detail:
UUP
Invesco DB US Dollar Index Bullish Fund is the prime beneficiary of a rising dollar as it offers exposure against a basket of six world currencies. This is done by tracking the Deutsche Bank Long USD Currency Portfolio Index - Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, Invesco DB US Dollar Index Bullish Fund allocates nearly 57.6% in euro and 25.5% collectively in the Japanese yen and British pound.
The fund has managed an asset base of $438.7 million while seeing an average daily volume of around 728,000 shares. UUP charges 78 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Metal & Mining ETFs at a 52-Week High: Here's Why).
USDU
WisdomTree Bloomberg U.S. Dollar Bullish Fund is another way to play the rise in the dollar directly. It offers exposure to the U.S. dollar against a basket of foreign currencies by tracking the Bloomberg Dollar Total Return Index. WisdomTree Bloomberg U.S. Dollar Bullish Fund exhibits strong negative correlations to international equity and bond portfolios.
WisdomTree Bloomberg U.S. Dollar Bullish Fund has amassed $280.8 million in AUM and trades in a good volume of about 242,000 shares per day on average. It charges 50 bps in annual fees.
IWM
A strong dollar provides an edge to domestic-focused companies as small caps do not have much exposure to the international market. iShares Russell 2000 ETF will benefit from a rising dollar. It provides exposure to a broad basket of 1,937 stocks by tracking the Russell 2000 Index, with none holding more than 1.5% of the assets. iShares Russell 2000 ETF is the most popular and liquid choice in the small-cap space, with AUM of $60.9 billion and an average trading volume of around 27 million shares (read: Leverage the Power of Utilities & Small-Caps With These ETFs).
iShares Russell 2000 ETF charges 19 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
ITA
A robust dollar can be good for U.S. defense companies, which often do significant business overseas. As foreign buyers pay in dollars, a stronger dollar can mean higher revenues for these firms when those revenues are repatriated. iShares U.S. Aerospace & Defense ETF provides exposure to U.S. companies that manufacture commercial and military aircraft and other defense equipment by tracking the Dow Jones U.S. Select Aerospace & Defense Index. It holds 34 stocks in its basket with AUM of $6.4 billion and an expense ratio of 0.40%.
iShares U.S. Aerospace & Defense ETF trades in an average daily volume of around 429,000 shares. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: 5 Top-Ranked Sector ETFs to Buy in June).
HEFA
The strength in the greenback would compel investors to recycle their portfolios into the currency-hedged ETFs. This is because a strong greenback eats away foreign investment gains when repatriated in U.S. dollar terms, pushing them into the red even when international stocks perform well. For those seeking exposure to the developed market, HEFA could be an intriguing pick. It targets the developed international stock market in Europe, Australasia and the Far East with no currency risk. iShares Currency Hedged MSCI EAFE ETF tracks the MSCI EAFE 100% Hedged to USD Index.
The fund has an AUM of $7 billion and trades in a solid volume of 901,000 shares. HEFA charges 35 bps in fees per year from investors and has a Zacks ETF Rank #3 with a Medium risk outlook.
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Profit From These ETFs on Dollar Strength
The U.S. dollar has been rising for a few weeks. It is now on its longest weekly winning streak since February. A Bloomberg gauge of the dollar rose to the highest level in more than a month after a stronger jobs report diminished rate cut bet hopes.
Investors seeking to make a play from this trend could consider ETFs such as Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) , WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU - Free Report) , iShares Russell 2000 ETF (IWM - Free Report) , iShares U.S. Aerospace & Defense ETF (ITA - Free Report) and iShares Currency Hedged MSCI EAFE ETF (HEFA - Free Report) .
The latest job data signals the strength of the U.S. economy, dialing back expectations of a rate cut. U.S. job growth jumped in May and wage growth accelerated. The economy added 272,000 jobs in May, above the Bloomberg expectation of 185,000 jobs, reflecting continued strong hiring in a range of sectors. Health care and social assistance led the job gains with 83,000. Leisure and hospitality, which includes restaurants and bars, added 42,000, and professional and business services added 33,000 jobs. The public sector, which added just 7,000 positions in April, rebounded with 43,000 gains.
Wage growth rose for the first time in months, though the unemployment rate rose from 3.9% to 4%, the highest since January 2022. Traders are no longer pricing in a rate cut before December.
A strong dollar attracts foreign money from investors seeking dollar-denominated returns, providing an edge to domestic-focused companies. Further, energy cost in America decreases with a stronger dollar, thereby lowering industrial costs, increasing profitability and propelling the overall economy.
Let’s now discuss the ETFs in detail:
UUP
Invesco DB US Dollar Index Bullish Fund is the prime beneficiary of a rising dollar as it offers exposure against a basket of six world currencies. This is done by tracking the Deutsche Bank Long USD Currency Portfolio Index - Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, Invesco DB US Dollar Index Bullish Fund allocates nearly 57.6% in euro and 25.5% collectively in the Japanese yen and British pound.
The fund has managed an asset base of $438.7 million while seeing an average daily volume of around 728,000 shares. UUP charges 78 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Metal & Mining ETFs at a 52-Week High: Here's Why).
USDU
WisdomTree Bloomberg U.S. Dollar Bullish Fund is another way to play the rise in the dollar directly. It offers exposure to the U.S. dollar against a basket of foreign currencies by tracking the Bloomberg Dollar Total Return Index. WisdomTree Bloomberg U.S. Dollar Bullish Fund exhibits strong negative correlations to international equity and bond portfolios.
WisdomTree Bloomberg U.S. Dollar Bullish Fund has amassed $280.8 million in AUM and trades in a good volume of about 242,000 shares per day on average. It charges 50 bps in annual fees.
IWM
A strong dollar provides an edge to domestic-focused companies as small caps do not have much exposure to the international market. iShares Russell 2000 ETF will benefit from a rising dollar. It provides exposure to a broad basket of 1,937 stocks by tracking the Russell 2000 Index, with none holding more than 1.5% of the assets. iShares Russell 2000 ETF is the most popular and liquid choice in the small-cap space, with AUM of $60.9 billion and an average trading volume of around 27 million shares (read: Leverage the Power of Utilities & Small-Caps With These ETFs).
iShares Russell 2000 ETF charges 19 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
ITA
A robust dollar can be good for U.S. defense companies, which often do significant business overseas. As foreign buyers pay in dollars, a stronger dollar can mean higher revenues for these firms when those revenues are repatriated. iShares U.S. Aerospace & Defense ETF provides exposure to U.S. companies that manufacture commercial and military aircraft and other defense equipment by tracking the Dow Jones U.S. Select Aerospace & Defense Index. It holds 34 stocks in its basket with AUM of $6.4 billion and an expense ratio of 0.40%.
iShares U.S. Aerospace & Defense ETF trades in an average daily volume of around 429,000 shares. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: 5 Top-Ranked Sector ETFs to Buy in June).
HEFA
The strength in the greenback would compel investors to recycle their portfolios into the currency-hedged ETFs. This is because a strong greenback eats away foreign investment gains when repatriated in U.S. dollar terms, pushing them into the red even when international stocks perform well. For those seeking exposure to the developed market, HEFA could be an intriguing pick. It targets the developed international stock market in Europe, Australasia and the Far East with no currency risk. iShares Currency Hedged MSCI EAFE ETF tracks the MSCI EAFE 100% Hedged to USD Index.
The fund has an AUM of $7 billion and trades in a solid volume of 901,000 shares. HEFA charges 35 bps in fees per year from investors and has a Zacks ETF Rank #3 with a Medium risk outlook.