Although the dollar ruled in 2015, it lost steam as it entered 2016. PowerShares DB US Dollar Bullish ETF (UUP – ETF report), which tracks the performance of the u.s. dollar against a basket of other currencies, lost about 4.4% in the first quarter of 2016.
The latest blow to the dollar came in the form of Yellen's dovish comments last month. The Fed Chair Janet Yellen stated that the U.S. central bank should proceed cautiously in adjusting policy rates. Yellen also highlighted changes in the economic environment since December, when the Fed raised rates for the first time in nearly a decade (read: ETF Winners & Losers Following Yellen Comments).
She noted that since the beginning of the year, readings on the U.S. economy have been mixed. While many indicators including labor market data, declining unemployment rate, moderate expansion of consumer spending and housing market recovery were favorable, a continued decline in manufacturing and net exports owing to slow global growth and the significant appreciation of the dollar can't be ignored.
In such a scenario, investors may be interested in the 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).
WisdomTree Brazilian Real Strategy ETF (BZF)
The Brazil real has been one of the best performers in the first quarter of 2016 thanks to surge in commodity prices. Speculations regarding a change in 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 value of the Brazilian real relative to the U.S. dollar. Both AUM and average daily volume are paltry at $17.6 million and 12,500 shares, respectively. The product charges 45 bps in annual fees and has gained nearly 15.1% in first quarter of 2016. It has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.
Guggenheim CurrencyShares Japanese Yen Trust (FXY)
The Japanese yen is another currency gaining this year due to its safe-haven nature. Given the spike in volatility due to global growth worries and Chinese market turbulence, investors flocked to safe assets like the yen.
Earlier this year, Bank of Japan (BoJ) adopted measures similar to the European Central Bank (ECB) by pushing interest rates to 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 6.7% in the first quarter of 2016. The ETF has accumulated $279.9 million in its asset base and the average daily volume is modest at 218,000. The fund has expense ratio of 40 bps and a Zacks ETF Rank #3 (Hold) with a High risk outlook.
Guggenheim CurrencyShares Canadian Dollar ETF (FXC)
Last quarter 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 6.5% in the first three 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 65,000 shares a day. The ETF has accumulated $218.4 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).
