Safe haven funds have been gaining investor attention, owing to rising geopolitical concerns. Despite widespread global criticism, North Korea has been continuously testing missiles to develop a nuclear program in order to safeguard itself from potential U.S. invasion, per North Korean leader Kim Jong-Un.
Moreover, North Korean diplomats have said that they have the potential of firing missiles to the U.S. mainland. While President Donald Trump has threatened to destroy North Korea completely if it attacks, his North Korean counterpart responded by warning the United States of the "highest level of hard-line countermeasure in history” (read: North Korea Jitters: ETF Winners and Losers).
Latest Developments in the Space
Geopolitical risks have again come into the picture as the United States and South Korea prepare for massive joint naval drills. “As long as one does not take part in the U.S. military actions against the DPRK, we have no intention to use or threaten to use nuclear weapons against any other country,” said Kim In Ryong, North Korea’s deputy ambassador to the United Nations.
Moreover, Russia urged the United States to reduce tensions and cut down on military drills near North Korea.
The United States imposed harsh fresh financial sanctions on North Korea, aimed at cutting down the funds that are sponsoring North Korea’s nuclear program. In the words of Treasury secretary Steve Mnuchin, "Foreign financial institutions are now on notice that going forward they can choose to do business with the United States or North Korea, but not both".
Let us discuss a few ETFs impacted by the rising geopolitical risks relating to North Korea (see all Currency ETFs here).
PowerShares DB US Dollar Bullish Fund UUP
This ETF seeks to provide exposure to the U.S. dollar. The U.S. dollar surged after John Taylor, a prospective candidate for the Fed chairman was said to have impressed Trump in an interview. Taylor is believed to be more hawkish and is known for a policy rule aimed at higher interest rates. However, geopolitical concerns weigh on it.
It has AUM of $635.2 million and charges a fee of 80 basis points a year. It has lost 8.4% year to date and 4.4% in a year (as of Oct 16, 2017). As such, UUP currently carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Japanese yen funds are the go-to investment vehicles in periods of rising risks. Although Japan’s proximity to North Korea creates doubts over its reliance as a safe haven currency, its significant foreign asset position makes it a good bet. Moreover, yen’s track record of safeguarding investors from global risks may also be a factor for its current relative appeal.
CurrencyShares Japanese Yen Trust FXY
This ETF seeks to provide exposure to the Japanese yen.
It has AUM of $111.8 million and charges a fee of 40 basis points a year. It has returned 3.8% year to date but has lost 7.5% in a year (as of Oct 16, 2017). As such, FXY currently carries a Zacks ETF Rank #3 with a Medium risk outlook.
What's Driving Gold higher?
Gold has been gaining on rising concerns relating to North Korea as well as Iran. At the White House last week, Trump proposed new sanctions on Iran and accused the Middle Eastern country of not adhering to the landmark nuclear deal which imposed curbs on Iran’s nuclear capacity in exchange for freeing assets and easing international trade restrictions.
It is a landmark nuclear deal that was signed between Iran and six global superpowers United States, U.K., Russia, France, Germany, and China. "As long as our rights are guaranteed, as long as our interests are served, as long as we benefit from the nuclear deal, we will respect and comply with the deal," Iranian President Hassan Rouhani said.
UK, Germany and France expressed their concerns over Trump’s actions. Congress requires the U.S. President to sign every 90 days that Iran is adhering to the deal and Trump has denied signing before the Sunday deadline, per a bbc.com article.
SPDR Gold Shares ETF GLD
This fund offers physical exposure to gold. It seeks to track the performance of the gold bullion and might turn out to be a cost-efficient way of gaining exposure to the commodity even after accounting for the fund’s expenses (read: Fed to Hike in December? Buy Quality ETFs).
It has AUM of $35.7 billion and charges a fee of 40 basis points a year. It has returned 12.2% year to date and 3.0% in a year (as of Oct 16, 2017). As such, GLD currently carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
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CRYSHS-JAP YEN (FXY): ETF Research Reports
GOLD (LONDON P (GLD): ETF Research Reports
PWRSH-DB US$ BU (UUP): ETF Research Reports
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