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Active USD ETF to Hedge Weakening EM Currencies


While the U.S. dollar is weakening against other developed currencies, the greenback has appreciated against emerging currencies, lifting a recently launched active USD exchange traded fund.

The actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) was up 0.3% Thursday while the PowerShares DB US Dollar Index Bullish Fund (UUP) dipped 0.1%. Year-to-date, UUP has increased 5.0% and USDU has gained 2.7%. [ETFs to Capitalize on Further U.S. Dollar Strength]

USDU is now outpacing the much larger PowerShares offering due to its emerging market components. Specifically, USDU includes exposure to the Mexican peso 9.5%, South Korean won 3.3%, Chinese yuan 3.0% and Brazilian real 2.2%.

UUP targets the price movement of the U.S. dollar against a basket of six developed-market currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

Currency traders are growing nervous over the recent spike in market volatility, writes Chiara Albanese for the Wall Street Journal.

“This is now becoming a sole-EM selloff. This is a challenge because it is not going to go away in a day or two. We are closing duration positions in our portfolio as we suspect this could go on for the next year,” Luis Costa, an emerging market strategist at Citigroup, said in the article.

For instance, the WisdomTree Emerging Currency Strategy Fund (CEW) , which tracks a group of 15 emerging market currencies against the U.S. dollar, was 0.4% lower Thursday. CEW has decreased 4.3% over the past three months and is down 1.5% year-to-date.

“The dollar bull environment is generally a difficult environment for EM currencies as volatility increases, rate and growth differentials tighten,” Andreas Konig, head of foreign exchange for Europe at Pioneer Investments, said in the article.

WisdomTree Bloomberg U.S. Dollar Bullish Fund


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