5 ETFs Getting Crushed By The Surging U.S. Dollar

by on July 23, 2013 | ETFs Mentioned:

As the U.S. market continues to recover, Ben Bernanke has announced his loose plan to ween the economy off the Federal money it has relied on heavily since 2008. While this is good news for the future of investing and will strengthen economic conditions in the long term, many investors have been overly flighty during transition discussions. In recent months, the dollar and bond rates have fallen a number of times before Bernanke has spoken, only to bounce back stronger than before once he finishes. While the dollar seems to finally be on the way up, this is not great news for all investors and has really affected the returns of a number of ETFs [for more ETF analysis, make sure to sign up for our free ETF newsletter].

1. iShares JP Morgan USD Emerging Markets Bond ETF (EMB, A-)

LEMB - Exchange Traded Funds - ETF Price Chart for Emrg Mkts Local Cur Bond Ishares

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After climbing high for months, EMB started to slip in the winter before taking a huge dive in the summer. While other emerging market funds also tanked in the early summer months, funds like the iShares Emerging Markets Local Currency Bond ETF (LEMB, A-) do not have the added hardship of a strong dollar to bring their returns down even more [also see Where Does Your Emerging Markets Bond ETF Really Invest].

2. iShares MSCI Emerging Markets ETF (EEM, A-)

DBEM - Exchange Traded Funds - ETF Price Chart for DB-X Emerging Mkts Hdgd Equity MSCI ETF

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This once popular fund has seen massive outflows as investors migrate back to developed markets while conditions improve at home. While EEM takes a straight approach to emerging stock market exposure, funds like db X-trackers MSCI Emerging Markets Hedged Equity Fund (DBEM, A-), which are designed to mitigate the fluctuation between the value of the U.S. dollar and non-U.S. currencies, have been able to avoid the strong dollar effect on returns [check out 25 Wild ETF Charts From 1H 2013].

3. Dreyfus Emerging Currency Fund (CEW, A)

CEW - Exchange Traded Funds - ETF Price Chart for Wisdomtree Emerging Currency Fund

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Offering exposure to the local currencies of China, Russia, and Mexico, to name a few, was a strong idea when these countries were competing with a weak dollar and had rising economies. As the tables turned, CEW took a massive hit and lost the momentum it had built through the winter and spring [check out the King Dollar ETFdb Portfolio for more U.S. Dollar investment strategies].

4. Dreyfus Brazillian Real Fund (BZF, A-)

BZF - Exchange Traded Funds - ETF Price Chart for Wisdomtree Brazilian Real Fund

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One of the largest disappointments for emerging market investors, Brazil has lost the steam it had for nearly a decade, with the economy only worsening following a number of uprisings in major cities. While many emerging market currency funds have taken losses with the strengthening U.S. dollar, none were hit as hard as BZF [also see Brazil Falling Back: Is It Time To Buy].

5. DB USD Index Bullish (UUP, A) or Bearish (UDN, A-)

UDN - Exchange Traded Funds - ETF Price Chart for DB US Dollar Index Bearish Powershares

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Both of these funds have fluctuated wildly as announcements for the Fed have inspired investors one week while sending them running the next. UUP invests in long futures contracts of the U.S. dollar against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc, while UDN invests in the short contracts to provide inverse exposure. After a rough fall in 2012, UUP has been unable to recover sufficiently to show the growing U.S. dollar value and has been easily beaten by UDN, which was having a great winter before February.

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Disclosure: No positions at time of writing.