Thanks to Abenomics, WisdomTree is enjoying tremendous success with its Japan Hedged Equity Fund (DXJ - Free Report) this year. The product returned an impressive 36% in the year-to-date time frame. The success goaded the issuer to launch quite a few products this year.
This month WisdomTree is back with its latest launch of The WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU - Free Report) which seeks to provide exposure to the U.S. dollar against a broad basket of developed and emerging market currencies.
The timing of this launch seems to be perfect, given that Fed will eventually begin its taper program in early 2014. (see 4 Best New ETFs of 2013).
USDU in Focus
The new ETF, launched on December 18, tracks the performance of the Bloomberg Dollar Total Return Index. The fund follows an active management strategy and seeks to deliver better returns than the index, although before fees and expenses.
The index aims to benefit fromx any appreciation in the U.S. dollar relative to a basket of 10 developed and emerging market currencies, charging investors 50 basis points annually. These currencies have the highest liquidity and also the largest U.S. trade flows.
The fund has the highest exposure to the Euro zone currency (34.32%), followed by the Japanese yen (16.13%), Canadian dollars (11.94%) and pound (10%) each with double-digit exposure. The fund has the least exposure in China (3.01%) and Singapore (2.10%) currencies. In a nutshell, the fund has half of its exposure in Europe, the Middle East & African currencies. (Read: Japan ETFs: One Year After Abenomics)
To ride the appreciation of the greenback against the basket of these currencies, the fund invests in very short-term investment grade government and corporate debt securities. However, unlike money market funds, the fund is not intended to keep its share prices constant.
How does it fit in a portfolio?
The fund could be a solid choice for investors who expect the greenback to rise against this assorted basket of currencies. After months of speculation, the Fed has finally decided to start tapering its $85 billion a month bond buying program by $10 billion from January onwards. (Read: Fed Tapers Bond Purchases: 3 ETFs in Focus on the News)
Market experts believe that though the Fed will keep interest rates near zero until the unemployment rate falls below 6.5%, the eventual decision to start tapering is encouraging. The decision strongly reflects Fed’s view that the economy is slowly recovering and is on a growth trajectory.
Positive economic data on employment, manufacturing, housing, consumer spending, and GDP growth speaks of a reviving economy. The economy has created 193,000 jobs in the past three months and the unemployment rate has declined gradually. The rate is currently at a five-year low of 7%.
Thus investors can consider adding this fund to their portfolio to ride the pullback in the greenback.
The fund has gathered $32.6 billion worth assets and added 0.64% till yesterday.
The recent product currently has a solitary competitor in PowerShares DB US Dollar Index Bullish Fund (UUP - Free Report) , which also seeks to build a bullish position on the dollar. UUP is the leader in the currency space and might make it a little difficult for WisdomTree to capture its share. The fund manages a huge asset base of $684 million and charges the same annual fees as USDU.
The Fed’s decision has finally revived hopes for the U.S. dollar. Investors who had unwinded their long positions in the dollar after a No Taper from the Fed can consider adding long positions now. The dollar is expected to rise going into the New Year against major currencies.
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