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4 Commodity Currency ETFs Outshining Dollar to Start Q4

Zacks Equity Research

The China-induced global economic uncertainties lashed out on the most risky asset classes to close Q3 and restrained the Fed from hiking key interest rates almost after a decade. Though the Fed attributed a wavering global financial market and a subdued inflation profile as the main cause for the deterrence of a lift-off, the sailing wasn’t smooth at home too.

 

This was because the U.S. economy reported sub-par job data in September. The year-to-date monthly pace of job gains now averages 198K and the pace for the last three months was much lower at 167K. This compares with the monthly average of 260K for 2014 (read: ETFs that Gained & Lost Post Dismal Job Data).

 

A weaker job report crushed all chances of a sooner-than-expected rate hike in the U.S. as it points toward slowing U.S. growth momentum. As a result, this latest bit of employment information stabbed the strength of the greenback which ruled the currency world for over a year and did magic for most commodities and the related ETFs to start of the fourth quarter.

Dollar ETF PowerShares DB US Dollar Bullish ETF (UUP) lost about 1.5% in the last 10 days (as of October 9, 2015) while most commodity-centric currencies turned out as surprise winners.

 

Apart from the range-bound U.S. dollar, an oil price rebound following falling crude oil production, the commodities behemoth Glencore PLC’s announcement to close its supply of many actively traded commodities from zinc to copper and a slowly stabilizing Chinese market (which happens to be a foremost user of metals) boosted trading in commodities (read: Correction Seems Over: Time for China ETFs?).

 

Prior to this, commodities witnessed horrendous trading and it goes without saying that such huge and prolonged sell-offs have made the commodities’ valuation so cheap that any single driver would easily take the commodity currency ETFs to new heights. Though we believe the trend might tumble once the rising rate worries are back on the table, at the current level many investors may try to remove some of the dollar risk from their portfolio and focus on currency ETFs that are outdoing the dollar to start Q4:

 

Below, we highlight four such currency funds that are shooting ahead of the greenback in October:

 

 WisdomTree Brazilian Real Strategy Fund (BZF) – Up 6.1%


Brazilian real was at a two-decade low at the end of September. But central bank intervention, easing political dispute over the budget, a subsiding lift-off and a commodity market bounce added to the real strength to start Q4. Since, Brazil is a commodity-centric economy, the recent surge in real is self-explanatory. Brazil’s Congress okayed most of the budget cuts, pension reforms and tax hikes planned by Rousseff’s government to contain spending and limit above-goal inflation.  


This fund seeks to achieve total returns reflective of both money market rates in Brazil available to foreign investors and changes in value of the Brazilian real relative to the U.S. dollar. Both AUM and average daily volume are paltry at $15.4 million and 20,000 shares, respectively. The product charges 45 bps in annual fees and is down 23.1% so far this year (as of October 9, 2015) (read: Commodity Currency ETFs in Trouble as Dollar Resumes Rally).


 It has a Zacks ETF Rank of 5 or ‘Strong Sell’ rating with a High risk outlook. However, the fund added over 6.1% in the last 10 days.




 WisdomTree Commodity Currency Fund (CCX) – Up 4.5%


This fund provides investors exposure to the currencies and money market rates of countries commonly known as commodity exporters. It seeks to achieve total returns reflective of both money market rates in select commodity-producing countries available to foreign investors and changes to the value of these currencies relative to the U.S. dollar (see: all currency ETFs here).


With this approach, investors can embark upon a variety of economies around the world. The product invests in eight currencies – Australian Dollar, Brazilian Real, Canadian Dollar, Chilean Peso, Norwegian Krone, New Zealand Dollar, Russian Ruble, and South African Rand – almost in equal proportions.


The fund is often overlooked by investors as depicted by its AUM of just $6.3 billion and average daily volume of about 1,500 shares. It charges 55 bps in annual fees. The ETF was up 4.5% over the past 10 days.

WisdomTree Dreyfus Emerging Currency Fund (CEW) – Up 4.8%

Thanks to the commodity strength, even emerging market currencies took the lead. Currently, the fund has a focus on Asian currencies (42%), followed by Latin America (25%) and Europe (17%).


This currency ETF also sees solid volume of about 45,000 shares a day on comparable $57.1 million in AUM. CEW charges 55 bps in fees. CEW advanced about 4.8% in the last 10 days (as of October 9, 2015).


Guggenheim CurrencyShares Australian Dollar Trust ETF (FXA) – Up 4.3%


This fund offers a great play to capitalize on the future rise in the Australian dollar relative to the U.S. dollar. It tracks the movement of the Australian dollar relative to the USD, net of the Trust expenses, which are expected to be paid from the interest earned on the deposited Australian dollars. The product has amassed $180.1 million in its asset base while trades in moderate volume of 45,000 shares per day on average. It has an expense ratio of 0.40% and was up 4.3% over the past 10 days.


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PWRSH-DB US$ BU (UUP): ETF Research Reports
 
WISDMTR-BRZ RL (BZF): ETF Research Reports
 
WISDMTR-COM CUR (CCX): ETF Research Reports
 
WISDMTR-EMG CUR (CEW): ETF Research Reports
 
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