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ETFs to Make the Most of Dollar Surge

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While U.S. stocks slipped into a bear market and cryptocurrencies hit their lowest levels in 18 months, the U.S. dollar against the basket of other currencies soared to two-decade highs. This is especially true against the backdrop of fears of a global economic slowdown and bets on steep interest rate hikes by the Fed that has raised the appeal for safe-haven play (see: all the Currency ETFs here).

Investors seeking to make a play from this trend could consider ETFs such as Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) , WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU - Free Report) , iShares Russell 2000 ETF (IWM - Free Report) and iShares Currency Hedged MSCI EAFE ETF (HEFA - Free Report) .

A strong dollar attracts foreign money from investors seeking dollar-denominated returns, providing an edge to the domestic-focused companies. Further, energy cost in America decreases with a stronger dollar, thereby lowering industrial cost, increasing profitability and propelling the overall economy.

The greenback gained momentum in recent weeks on recession fears. The latest data on inflation aggravated concerns over the global slowdown, thereby compelling investors’ to take a flight to safety. After cooling somewhat in April, U.S. consumer prices have accelerated at the fastest rate in May since 1981, as Americans grapple with a surge in the cost of gas, food and shelter. The data has put pressure on Fed to extend an aggressive series of interest rate hikes and has added to political problems for the White House and Democrats.

Further, the World Bank recently slashed its global growth forecast, citing the war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation. It now expects the global economy to expand 2.9% for this year, down from 5.7% growth in 2021 and lower than the 401% expectation projected in January. The agency cautioned that many countries could fall into recession as the economy slips into a period of stagflation reminiscent of the 1970s (read: 5 Recession-Proof ETFs for Your Portfolio).

Let’s now discuss the ETFs in detail:


Invesco DB US Dollar Index Bullish Fund is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies. This is done by tracking the Deutsche Bank Long USD Currency Portfolio Index - Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, Invesco DB US Dollar Index Bullish Fund allocates nearly 57.6% in euro and 25.5% collectively in the Japanese yen and British pound.

The fund has managed an asset base of $1.7 billion while seeing an average daily volume of around 3 million shares. UUP charges 78 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.


WisdomTree Bloomberg U.S. Dollar Bullish Fund is another way to play the rise in dollar directly. It offers exposure to the U.S. dollar against a basket of foreign currencies by tracking the Bloomberg Dollar Total Return Index. WisdomTree Bloomberg U.S. Dollar Bullish Fund exhibits strong negative correlations to international equity and bond portfolios.

WisdomTree Bloomberg U.S. Dollar Bullish Fund has amassed $304 million in AUM and trades in a lower volume of about 728,000 shares per day on average. It charges 50 bps in annual fees.


A strong dollar provides an edge to the domestic-focused companies as small caps do not have much exposure to the international market. iShares Russell 2000 ETF will benefit from a rising dollar. It provides exposure to a broad basket of 2,003 stocks by tracking the Russell 2000 Index, with none holding more than 0.66% of assets. iShares Russell 2000 ETF is the most popular and liquid choice in the small-cap space, with AUM of $52.6 billion and an average trading volume of around 30.7 million shares (read: 6 Reasons Why You Should Tap Small-Cap ETFs Now).

iShares Russell 2000 ETF charges 19 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


The strength in the greenback would compel investors to recycle their portfolios into the currency-hedged ETFs. For those seeking exposure to the developed market, iShares Currency Hedged MSCI EAFE ETF could be an intriguing pick. It targets the developed international stock market in Europe, Australasia, and the Far East with no currency risk. iShares Currency Hedged MSCI EAFE ETF tracks the MSCI EAFE 100% Hedged to USD Index (read: Time for Currency-Hedged International ETFs?).

The fund has AUM of $3.6 billion and trades in a solid volume of 879,000 shares. HEFA charges 35 bps in fees per year from investors and has a Zacks ETF Rank #3 with a Medium risk outlook.

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