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Best Performing Currency ETFs of 1H16

Zacks Equity Research

Currencies have once again come into the forefront after the British pound took a beating following the Brexit vote on June 23. The currency fell to a 31-year low following U.K.’s decision to leave the European Union, forcing the pound ETF CurrencyShares British Pound Sterling ETF FXB to shed 8.4% on June 24, 2016. The fund continued on a southward journey and is down almost 11% as of June 30, 2016 (read: British Pound ETF: Time to Buy?).

Meanwhile, the performance of the greenback has been lackluster as well. Although demand for the currency saw some strength in the aftermath of the Brexit vote, it has come nowhere near the stellar performance of 2015. PowerShares DB US Dollar Bullish ETF UUP, which tracks the performance of the U.S. dollar against a basket of other currencies, lost about 3.2% in the first half of 2016.

Dollar has been suffering due to a combination of uneven economic indicators and global headwinds, which have put any near-term rate hike by the Fed off the table. Earlier this month, the Fed announced its decision not to raise interest rates and hinted that further increases would most likely occur at a slower pace than expected previously. The Federal Reserve Chair Janet Yellen even stated that a Brexit vote was one of the factors behind the Fed holding rates constant apart from mixed readings on the labor market and economic growth (read: Yellen Upbeat on Economy: Wining Sector ETFs).

In such a scenario, investors may be interested in some top-performing currencies and their related ETFs in the year-to-date frame. Below we highlight such products in detail (see all currency ETFs here).

Best Performing

Guggenheim CurrencyShares Japanese Yen Trust FXY

The Japanese yen is gaining this year due to its safe-haven nature. Given the spike in volatility due to global growth worries, continued turmoil in oil prices, loss of momentum even in the otherwise improving U.S. economy and corporate earnings recession, investors were compelled to flock to safe assets like the yen.

Earlier this year, Bank of Japan (BoJ) undertook easing measures and pushed key interest rates to a negative territory. This step from the BOJ helps the third-largest country in the world to get closer to its target inflation rate of 2%. It is an effort to boost confidence and spending by companies and households (read: Japan ETFs to Tap on Renewed Stimulus Hopes).

This is why FXY – which tracks the price of the Japanese yen – has added 16.1% in the first half of 2016. The ETF has accumulated $160.1 million in its asset base and the average daily volume is modest at 255,000. The fund has an expense ratio of 40 bps and a Zacks ETF Rank #3 (Hold) with a High risk outlook.

WisdomTree Brazilian Real Strategy ETF BZF

The Brazil real has been one of the best performers in the first half of 2016, thanks to a surge in commodity prices. Speculations regarding a change in the government are rife in Brazil. Investors in favor of a change believe that new leadership could be in a better position to revive the battered economy. A new government could infuse a fresh lease of life into the ailing economy, which otherwise is expected to contract for a second straight year in 2016. After shrinking 3.9% in 2015, the economy is expected to contract by 3.5% this year (read: Why Brazil ETFs are Gaining despite Economic and Political Risks?).

BZF seeks to achieve total returns reflective of both money market rates in Brazil available to foreign investors and changes in the value of the Brazilian real relative to the U.S. dollar. Both AUM and average daily volume are paltry at $23 million and 15,000 shares, respectively. The product charges 45 bps in annual fees and has gained more than 32% in the first half of 2016. It has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.

Guggenheim CurrencyShares Canadian Dollar Trust ETF FXC  

The first half also witnessed a move away from the lackluster U.S. dollar to the Canadian currency. Occasional spikes in energy prices boosted the appeal of oil-rich Canada’s currency. As a result, FXC, which tracks the price of the Canadian dollar relative to the U.S. dollar, has gained 7% in the first six months of 2016. As far as the fund’s structure is concerned, the product charges 40 bps a year in fees and sees moderate volume of about 71,000 shares a day. The ETF has accumulated $217.2 million in its asset base. FXC has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: These Commodity Currency ETFs Outpacing Dollar to Start 2016).

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