ETF Winners & Losers From No Rate Hike

October 14, 2015

Dollar Sags

In contrast to bonds and gold, which have jumped on the prospect of a delayed rate hike, the U.S. dollar has gone the other way. The U.S. Dollar Index sagged to 94.22, putting it near the bottom of this year's trading range.

The PowerShares DB US Dollar Index Bullish ETF (UUP | B-73) is still up for the year, but well off its highs.


YTD Return For UUP

That said, the dollar's retreat has repercussions beyond just UUP.

For one, it takes some pressure off emerging market currencies, which fell precipitously throughout the year. That's a positive for those economies and an ETF like the Vanguard FTSE Emerging Markets ETF (VWO | C-89).

A lower greenback also aids U.S. corporations, by making exporters in the country more competitive and increasing the value of foreign sales.

Currency Hedging

From a tactical perspective, the dollar's moves may have an impact on investors' decision on whether to hedge currency risk.

Currency-hedged products like the WisdomTree Japan Hedged Equity ETF (DXJ | B-67) and the WisdomTree Europe Hedged Equity ETF (HEDJ | B-51) have been extremely popular in recent years on the back of the idea that the dollar will continue to strengthen against rival currencies.

If the dollar trade is truly reversing, these ETFs won't be as attractive compared with unhedged ETFs, which will outperform as the dollar weakens.


Contact Sumit Roy @ [email protected].

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