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Top Yielding ETFs

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With European debt woes threatening to topple the global economy, many felt that central banks around the world would be soon forced to act. Those that have been pleading for this intervention appear to have had at least part of their wish fulfilled as five of the world’s most important central banks pledged to shore up liquidity in the financial system. The banks agreed to push existing U.S. dollar liquidity swap agreements lower by 50 basis points starting next week, roughly cutting in half the cost for banks to borrow dollars from central banks.

Additionally, access to the swap lines were extended until the start of February 2013, giving banks plenty of time to access cheap money over the next 14 months, further reducing the risk of a company not being able to obtain dollars in the near term. “The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said in a statement.

While equity traders and banking institutions rejoiced at this news, one of the big losers on this news was the dollar as traders dumped the greenback for riskier assets. Although stocks were a popular choice, an especially trendy pick were products in the commodity space. Copper jumped by nearly 4.7%-- although Chinese news also played a part in this development-- while gold and silver added about 1.7% in early trading as well. Overall, the U.S. dollar, as represented by the U.S. dollar index, slumped as the benchmark fell by about 1.1% in early Wednesday trading. However, the gains weren’t uniform across the board as some currency products managed to greatly outperform their peers in the session. Among the top performers, pretty much across the board, were the ‘commodity currency ETFs’ such as those following the markets of Canada, Australia, or Brazil. These currencies rose on not only the dollar weakness, but also on huge gains for some of their key commodities, further adding to the appeal of holding these currency alternatives (read Avoid Turmoil With The Community Bank ETF).

Below, we highlight four of the biggest currency ETF winners from this coordinated push by the world’s leading central banks that investors may want to consider if they think that a weaker dollar and higher commodity prices are likely to be the trend in the near future:

  • CurrencyShares Australian Dollar Trust (FXA - ETF report)- This ETF tracking the performance of the Aussie dollar against the U.S. dollar was a big winner in Wednesday trading. Australia is known for its production of a wide variety of base metals so gains in this corner of the commodity world trickled down into the nation’s currency as well. FXA was up about 2.7% in early Wednesday trading, helping to reverse a downtrend that the product has been experiencing as of late (also see Top Three Precious Metal Mining ETFs).
  • CurrencyShares Canadian Dollar Trust (FXC - ETF report)- For investors seeking exposure to the Canadian dollar, also known as the ‘loonie’ FXC is a quality choice. Thanks in part to Canada’s vast agricultural and petrochemical production, FXC was a big winner in Wednesday trading, following the nearly 1% gain in wheat and 1.6% gain in WTI crude. This helped to push FXC higher by 1.4% in the session, again helping to reverse a recent downtrend that the product has been experiencing.
  • WisdomTree Dreyfus Brazilian Real Fund (BZF - ETF report)- Investors should note that today’s surge wasn’t exclusive to developed market currencies as some of the biggest commodity producers are emerging nations. The Brazilian real, as represented by BZF, was a big winner as well thanks to this commodity jump, riding off the back of gains in coffee (+3.6%), sugar (+1.8%) and oil (+1.6%). This helped to push BZF up by close to 2.3% in the session and comes at a time when many were losing faith in Brazil’s currency, helping to put a stop to these concerns at least for the time being (read Top Three High Yield Real Estate ETFs).
  • WisdomTree Dreyfus Commodity Currency Fund (CCX - ETF report)- For those seeking a one stop shop for commodity currencies, CCX represents an intriguing pick. In addition to weightings in the currencies of Australia, Canada, and Brazil, the product also holds double-digit allocations to the currencies of the following nations; New Zealand, South Africa, Norway, Russia, and Chile. The fund also has a fifty-fifty split among developed and emerging markets while still accounting for all of the major commodity groups. As such, the product could serve as a decent proxy for the broad commodity currency sector and was among the biggest gainers in the space on the day, rising by close to 2.5%.

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