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U.S. Dollar Sees First Drop Since 2017: ETFs & Stocks to Buy

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After a strong start to 2020, the U.S. dollar wrapped up the year on a weaker note. Notably, the ICE U.S. Dollar Index, a measure of the unit against a basket of six major rivals, dropped 6.7%, representing the first annual drop since 2017. Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) , tracking the dollar index, has shed 6.6% last year.

The historic decline came after the greenback became the world's strongest major currency in the first three months. The dollar peaked to more than a three-year high on Mar 22 as investors rushed to cash amid the COVID-19 pandemic.

The super-easy policies by the Fed and the central government as well as a series of vaccine development have pushed the U.S. dollar down. The weak trend is likely to continue in the New Year. This is especially true as a vaccine is expected to end the pandemic-ravaged economic damage and lead to a swift global recovery, thereby dimming the lure of dollar as a safe haven.  Pfizer (PFE - Free Report) and Moderna (MRNA - Free Report) have been leading the way in coronavirus vaccine rollout with more firms on the way (read: U.S. Dollar to Remain Weak in 2021? ETFs to Gain).   

A fresh stimulus package of $900 billion has also put pressure on the greenback. The additional spending will help to cushion the economy amid the second round of restrictions put in place by states and local authorities to manage the COVID-19 spread. Further, the reflation trade will lead to the continuation of the downside momentum for the dollar. Per Reuters, over two-thirds of analysts expect the dollar to continue trending down at least until mid 2021.

Weak Dollar: A Boon

A weak dollar has befitted 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 metal producers are getting a lift from a weak dollar.

Given this, we have highlighted ETFs and stocks from each of these zones that are benefiting from the current trend and are likely to continue doing so in 2021.

ETFs to Bet

Vanguard Mega Cap Growth ETF (MGK - Free Report)

With AUM of $9.97 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 100 securities in its basket with none accounting for more than 12.6% of total assets. Information technology takes the largest share at 48% while consumer discretionary takes 24.5% of assets. The ETF charges 7 bps in annual fees and trades in a good volume of around 342,000 shares a day on average. The fund gained 41% last year and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

VanEck Vectors Gold Mining ETF (GDX - Free Report)

This is the most-popular and actively traded gold miner ETF with AUM of $16.4 billion and an average daily volume of around 22.7 million shares. The fund follows the NYSE Arca Gold Miners Index, holding 53 stocks in its basket with higher concentration on the top two firms. Canadian firms account for 45% of the portfolio while the United States (16.9%) and Australia (14.7%) round off the top three. The fund charges 52 bps in annual fees and gained 23.6% last year.

iShares Core MSCI Emerging Markets ETF (IEMG - Free Report)

This ETF follows the MSCI Emerging Markets Investable Market Index, offering exposure to a broad range of emerging market companies. It holds 2,521 stocks with each accounting for less than 5.3% of assets. The product has key holdings in information technology, consumer discretionary, financials and communications. Among the emerging countries, China takes the top spot at 36% share while South Korea and Taiwan round off the next two spots. The fund has AUM of $67.5 billion and trades in an average daily volume of around 11.6 million shares. It charges 11 bps in fees per year from investors and has soared about 18% in a year. The fund has a Zacks ETF Rank #3 with a Medium risk outlook (read: Emerging Markets Hit Record High: 5 Top-Performing ETFs YTD).

Invesco DB US Dollar Index Bearish Fund (UDN - Free Report)

This fund could be the prime beneficiary of the falling dollar as it offers exposure to the basket of six world currencies against the U.S. dollar. This is done by tracking the Deutsche Bank Short US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, UDN allocates nearly 57.6% in euro while 25.5% collectively in Japanese yen and British pound. The fund has so far managed an asset base of $93.6 million while sees a moderate daily volume of 137,000 shares. It charges 77 bps in annual fees, and has gained 6.2% in a year.

Stocks to Bet

Broadcom Inc. (AVGO - Free Report)

Based in California, Broadcom is a premier designer, developer and global supplier of a broad range of semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor or CMOS-based devices and analog III-V based products. The stock saw solid earnings estimate revision of 94 cents for fiscal year (ending October 2021) over the past 30 days with a substantial expected earnings growth rate of 18.4%. The stock has a Zacks Rank #2 (Buy) and VGM Score of B.

Rio Tinto PLC (RIO - Free Report)

Based in United Kingdom, Rio Tinto is engaged in finding, mining and processing mineral resources worldwide. The stock saw solid earnings estimate revision of 14 cents for fiscal year (ending Dec 2021) over the past 30 days with expected earnings growth of 39.3%. It has a Zacks Rank #1 and VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Deere & Company (DE - Free Report)

Based in Illinois, Deere is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme. It has impressive earnings estimate revision of 26 cents over the past 30 days for the fiscal year (ending Oct 2021) with an expected earnings growth rate of 48.4%. The stock has a Zacks Rank #1 and Growth Score of A (read: Top & Flop Zones of 2020 and Their ETFs).

BHP Billiton PLC

Based in Melbourne Victoria, BHP Billiton is engaged in production of minerals which includes iron ore, metallurgical coal, copper and uranium as well as oil, gas and energy coal. It has seen solid earnings estimate revision of 19 cents for fiscal year (ending June 2021) over the past month and has an expected earnings growth rate of 38%. It has a Zacks Rank #2 and VGM Score of A.

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