Top Long and Short US Dollar ETF for Investors

US dollar has been in a bull market since 2012 and broke out of its long term downtrend in 2014.

US dollar exchange trade fund can be one of many ETF portfolio strategies which can add uncorrelated returns, as a hedge to stocks with significant international presence and enhance portfolio diversification.

There are 2 primary kinds of USD ETFs Investor can use to gain this exposure.

The first is ETFs with underlying exposure of a US dollar index. The index is a composite of a basket of currencies against the US dollar.

The second option if using single currency ETFs that includes US dollar (i.e EUR:USD or AUD:USD rates). The choice of using particular particular ETF depends largely on the risk the investor is willing to bear.

Trading the movements in the US dollar through US dollar index is a lower risk option. Using a basket of currencies can minimise volatility but at a cost of return.

Overall return is based on the combined return of a diversified portfolio of currencies. A US dollar index based ETF can be attractive for investors who would rather follow the bullish or bearing trend in the US dollar instead of specific currency exposure.

Related see our Emerging market debt ETF research for in depth analysis of best emerging market ETFs.

On the other hand, for investors who thinks the US dollar would outperform against specific currencies. ETF providers have created a number of funds that tracks single currency movements using the US dollar.

US Dollar Year to Date Performance

US Dollar Index ETFs

ETF Name Ticker Tracking Index Leverage
PowerShares DB US Dollar Index Bullish Fund UUP Deutsche Bank Long US Dollar Index 1x
WisdomTree Bloomberg U.S. Dollar Bullish Fund USDU Bloomberg Dollar Total Return Index 1x
PowerShares DB US Dollar Bearish Fund UDN Bloomberg Dollar Total Return Index 1x

Long US Dollar ETF

PowerShares DB US Dollar Index Bullish Fund (UUP) and WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) tracks a basket of currencies against the US dollar. Chart below shows the weight of individual currencies in each ETF basket:

Investors should note however that while Powershares UPP ETF follows the US dollar index (spot). The underlying instruments used is FX futures contracts traded on the ICE exchange. There may be tracking errors and additional cost using futures rather than spot positions.

WisdomTrees (USDU) US dollar ETF includes a much more diversified basket of currencies. The primary difference is the inclusions of some emerging market currencies such as the Brazilian Real (BRL) and Mexico Peso (MXN).

Additionally while both basket have certain exposure to Asia through large weights for the Japanese Yen. The addition of the Australian Dollar, South Korean Won and Chinese Yuan weights is at the expense of Euro and Japanese Yen. Overall the inclusion of additional currencies offset the risks of higher risk currencies.

Powershares highlights that the volatility over a number of timeframe. This provides a guide for investors in the index to understand future volatility of the index.

Volatility Timeframe Volatility
Daily volatility over full history 8.82%
Average rolling 3 month daily volatility 8.54%
Monthly return volatility 8.84%
Average annual volatility 8.68%

Annualized US dollar index daily volatility
Annualized daily volatility of US Dollar index

The annualized volatility shows volatility goes in trends, with gradual decrease and increase over set number of years. This has been trending down since 2009.

Leveraged US Dollar ETF

Investors wishing to use inherent leverage in ETF to dollar etf 3x the index movement can use PowerShares DB 3x Long US Dollar Index Futures Exchange Traded Notes (UUPT). The underlying index for UUPT is the same as UPT. Note the introduction of leverage severely increase the risk of the position.  In 2014 Deutsche Bank decided to redeem the ETF so it will no longer be traded.

Short US Dollar ETF

PowerShares DB US Dollar Bearish Fund (UDN) is an inverse dollar ETF. Inverse ETF increase in value when the US dollar declines against the basket of currencies the index tracks (this is similar to Inverse S&P 500 Index ETF). If borrowing cost is not significant from your broker. You can create a leveraged inverse dollar ETF through shorting UUPT.

Individual currency against US Dollar ETFs

The list of ETFs below are single currency funds investors can use to gain USD FX exposure.

The position column for each ETF highlight the specific underlying exchange rate versus the USD. Investors should note that taking specific positions would be a lot more risky than using a basket of currencies in the US dollar index funds above. Annualized daily volatility and total returns profiles differ currency by currency.

These are also more leverage position focused funds. However a smaller position in the portfolio can be used to compensate the inherent leverage in these ETFs if investors wish to minimise impact of leverage.

Fund Name Ticker USD Position Currency Leverage
Short Euro EUFX Long USD / Short EUR Euro/US Dollar -1x
Ultra Australian Dollar GDAY Short USD / Long AUD Australian Dollar/US Dollar 2x
Ultra Euro ULE Short USD / Long USD Euro/US Dollar 2x
Ultra Yen YCL Short USD / Long Yen Yen/US Dollar 2x
UltraShort Australian Dollar CROC Long USD / Short AUD Australian Dollar/US Dollar -2x
UltraShort Euro EUO Long USD / Short EUR Euro/US Dollar -2x
UltraShort Yen YCS Long USD / Short Yen Yen/US Dollar -2x