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King Dollar Has Hit These Sector ETFs


Helped by a heaping dose of tapering talk, the U.S. dollar has been a juggernaut currency in recent weeks. Since the start of June, the PowerShares DB Dollar Bullish (UUP) has climbed 2.1%, a decent move for a supposedly not-so-risky developed market currency in that amount of time.

Investors are putting dollars into the dollar as UUP has seen inflow of almost $180 million in the past month, according to PowerShares data. Among the firm’s ETFs, only the PowerShares QQQ (QQQ) has attracted more cash in the past month.

While U.S. stocks have risen alongside the dollar, not all sectors have benefited from the stronger greenback. Some of the sector ETFs that have traded lower as UUP has gained steam since early June may come as a surprise to investors. The strong dollar is often associated with rising interest rates and those higher rates can be bad news for utilities stocks, but the Utilities Select Sector SPDR (XLU) is up almost 1% over the past six weeks. [Utilities ETFs Hit by Rising Rates]

Consumer staples companies such as Procter & Gamble (PG) and Colgate-Palmolive (CL) depend on global markets for substantial parts of revenue, making those companies and others vulnerable to a strong dollar. However, the Consumer Staples Select Sector SPDR (XLP) has gained 1.2% since early June. [Staples ETFs For Yield]

In fact, seven of the nine sector SPDR ETFs have gained ground alongside UUP since June 3. The worst-performing SPDR over that time probably is not a surprise. That dubious honor goes to the Materials Select Sector SPDR (XLB) , which is down 1.6%. XLB, home to almost $2.9 billion in assets under management, is not heavy on mining stocks, but the ETF does allocate almost 16% of its weight to that industry and that has been enough to weigh on the ETF. [Mining ETFs Take a Header]

XLB has some time to get its act together because over the previous 13 years, the ETF is usually the top-performing sector SPDR in the month of July. The other SPDR that has been hampered by the strong dollar is the Technology Select Sector SPDR (XLK), which is down 1.2% since early June.

Rising rate fears have resulted in break-even trade among AT&T (NYSE: T) and Verizon (VZ) in the past month. The former is down just over 1% while the latter is higher by the same amount. Those stocks combine for 11.3% of XLK’s weight, but the worst offender among XLK’s top-10 holdings has been Intel (INTC). Shares of the world’s largest semiconductor maker have slipped 7.3% in the past month, a decline hastened more by analyst downgrades seen on Monday than the strong dollar.

Technology Select Sector SPDR


ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of Procter & Gamble and QQQ.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.