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4 ETF Zones Making the Most of a Weakening Dollar

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After peaking to more than a three-year high on Mar 22, the U.S. dollar has now slumped to its lowest level in nearly two years. Notably, the Bloomberg Dollar Spot Index dropped for four consecutive weeks with more than 3% cumulative  losses — marking the longest streak since early 2019. The index is down 3.9% so far this month and is poised for its worst July since 2010.

The decline came as investors became skittish with a resurge in coronavirus cases that could make it difficult for the U.S. economy to outperform its peers. Per a Reuters tally, U.S. coronavirus cases topped 4 million on Jul 23 with over 2,600 new cases every hour on average — the highest rate in the world. According to a New York Times tracker, the country added more than 69,900 cases on Jul 23 that shows cases rising in 40 states over the last 14 days led by Florida and Louisiana (read: 4 ETF Areas to Keep Soaring as Coronavirus Cases Rise).

Additionally, a flare-up in tension with China and uncertainty over November presidential election led to a decline in U.S. dollar. In particular, tensions between the world’s two superpowers escalated when China ordered the closure of the U.S. consulates in Chengdu in retaliation to America shuttering Beijing’s diplomatic mission in Houston last week.

A spike in U.S. jobless claims last week for the first time in four months as well as growing expectations that the Federal Reserve will have to slash policy rates further also weighed on the greenback. Further, the rise in euro currency following the European Union’s landmark deal for a 750-billion-euro, or $871 billion, economic recovery fund led to a drop in the dollar.

Per a Bloomberg article, a rout that sent the dollar to the lowest since February 2019 may have room to run. Data from the Commodity Futures Trading Commission shows that asset managers added to net long positions on the yen, the euro, the Canadian dollar and the Swiss franc, leading to a sell-off in the U.S. dollar.

Weak Dollar: A Boon

A weak dollar has fueled a rally in the stock market, especially the blue chip companies which derive most of their revenues from international markets. This is because a weak dollar has made dollar-denominated assets cheap for foreign investors, making U.S. multinationals more competitive, thereby leading to increased profits. As such, companies having a higher percentage of international sales may outperform. Moreover, commodities, emerging markets as well as gold mining stocks are also getting a lift from a weak dollar.

Given this, we have highlighted ETFs from each of these zones that are benefiting from the current trend and are likely to do as long as dollar remains weak.

Vanguard Mega Cap Growth ETF (MGK - Free Report)

With AUM of $8.3 billion, this ETF offers diversified exposure to the largest growth stocks in the U.S. market by tracking the CRSP US Mega Cap Growth Index. It holds 114 securities in its basket with none accounting for more than 12.3% of total assets. Information technology takes the largest share at 46.3% while consumer services, financials and industrials round off the next spots. It charges 7 bps in annual fees and trades in good volume of around 388,000 shares a day on average. The fund has gained 20.1% over the past 13-week period and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Growth Investing Leads in 1H: 5 Top ETFs & Stocks).

Invesco DB Commodity Index Tracking Fund (DBC - Free Report)

This fund tracks the DBIQ Optimum Yield Diversified Commodity Index Excess Return, which delivers returns through futures contracts on 14 of the most heavily traded and important physical commodities in the world. The fund charges 89 bps in annual fees while trades in a solid volume of 926,000 shares per day. The product has managed assets of $951.3 million and has gained 20.6% over the past 13-week period.

Invesco S&P Emerging Markets Momentum ETF (EEMO - Free Report)

This ETF follows the S&P Momentum Emerging Plus LargeMidCap Index, holding 210 stocks in its basket with none accounting for more than 9.7% of assets. Information technology is the top sector making up for 27.5% share while financials and consumer discretionary round off the next spots. Among the emerging countries, China and Taiwan takes the top spot at more than 24% share each while South Korea and Brazil round off the next two spots. The fund has accumulated $6.1 million and trades in average daily volume of around 4,000 shares. EEMO charges 29 bps in fees per year from investors and has soared 28.7% in the last 13 weeks. It has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook (read: Most-Loved and Hated ETFs of First-Half 2020).

VanEck Vectors Gold Mining ETF (GDX - Free Report)

This is the most popular and actively traded gold miner ETF with AUM of $18.1 billion and average daily volume of around 30.2 million shares. The fund follows the NYSE Arca Gold Miners Index, holding 54 stocks in its basket with higher concentration on the top two firms. Canadian firms account for 44.4% of the portfolio while the United States (18.2%) and Australia (14.7%) round off the top three. The fund charges 52 bps in annual fees and has gained 23.3% over the past 13-week period.

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