The U.S. dollar hit a two-decade high last Thursday as the Bank of Japan strengthened its decision to ultra-low interest rates and encouraged offering to buy an infinite amount of bonds every session. At the same time, the U.S. shares surged with strong earnings reports, shrugging off the persistent macroeconomic issues. In April, the dollar gained more than 6%, and the dollar index rose to 103.85.
A strong dollar benefits domestic companies dependent on inputs from foreign countries as they get more foreign-currency-denominated inputs by keeping their spending unchanged. In addition, the U.S. energy costs also tend to decrease with a strong dollar, leading to low industrial costs, substantial profits, and an improved overall economy.
Given this backdrop, we think it could be wise to invest in ETFs Invesco DB USD Index Bullish Fund ETF (UUP) and WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU), which benefit from the strengthening of the U.S. dollar.
Invesco DB USD Index Bullish Fund ETF (UUP)
UUP provides exposure to a basket of currencies relative to the U.S. dollar, decreasing in value when the trade-weighted basket strengthens and increasing when the dollar appreciates. This fund could be feasible for investors looking for a fund that is inversely correlated to the broad stock market or for those making a bet on a flight to quality.
The fund has approximately $1.15 billion in assets under management (AUM). Government & Agency Portfolio is the top holding of UUP, with a 73% weighting, followed by the United States Treasury Bill and Invesco Treasury Collateral ETF (CLTL), with 16.2% and 10.8% weightings, respectively.
UUP has an expense ratio of 0.78% versus the category average of 0.61%. The fund has gained 7.6% year-to-date and 11.6% over the past nine months. Over the past month, the ETF's net fund flows were $160.69 million.
Closing the last trading session at $27.57, the ETF is currently trading slightly below its 52-week high of $27.77. UUP's NAV stands at $27.51.
UUP's POWR Ratings reflect this promising outlook. The ETF has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
UUP has an A grade for Trade, Peer, and Buy & Hold. Of the 16 ETFs in the B-rated Currency ETFs group, UUP is ranked #1.
WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU)
USDU is a long-USD currency ETF that offers short exposure to a basket of different global currencies relative to the USD to capitalize on a rising dollar scenario. This actively managed fund is inclusive of the Australian dollar and several emerging-market currencies, offering a more representative take on the long dollar.
USDU has approximately $452.6 million in AUM. The fund's major holdings include the United States Treasury Bills 0.0% 07-JUL-2022 with a 24.07% weighting, United States Treasury Bills 0.0% 18-AUG-2022, and United States Treasury Bills 0.0% 09-JUN-2022 with 23.91% and 23.80% weightings, respectively.
USDU has an expense ratio of 0.50% compared to the category average of 0.61%. The ETF has gained 5.6% year-to-date and 8.3% over the past nine months. Over the past month, the ETF's net fund flows were $267.17 million.
Closing the last trading session at 27.53, the ETF is currently trading slightly below its 52-week high of $27.77. Its NAV stands at $27.58. The fund has a five-year monthly beta of -1.70.
It is no surprise that USDU has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. It also has an A rating for Trade, Peer, and Buy & Hold grade. In addition, it is currently ranked #2 of 16 ETFs in the Currency ETFs group.
UUP shares were trading at $27.64 per share on Monday morning, up $0.07 (+0.25%). Year-to-date, UUP has gained 7.84%, versus a -12.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
2 ETFs to Buy as the U.S. Dollar Hits a 20-Year High StockNews.com
