Top 6 Best Currency ETFs For 2024

Invesco DB US Dollar Index Bullish Fund (UUP)

UUP Performance Since Inception

The Invesco DB US Dollar Index Bullish Fund stands as the largest currency ETF in terms of assets under management. It tracks the fluctuations in the U.S. dollar's value against major global currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.

This fund comprises a diverse range of U.S. Dollar Index futures contracts. Its recent strong performance reflects the dollar's robustness against international currencies. It's an excellent choice for active traders who seek to capitalize on trends and employ strategies reliant on short trading and futures contracts.

UP tracks the DB Long USD Currency Portfolio Index ER, which reflects alterations in the U.S. dollar's value relative to a selection of global currencies. It sets itself apart from this benchmark by maintaining a higher-than-average exposure to the euro. In particular, the fund takes short positions against the euro (EUR), Japanese yen (JPY), British pound (GBP), Canadian dollar (CAD), Swedish krona (SEK), and Swiss franc (CHF). Recently, UUP has exhibited stronger performance compared to other currency funds, driven by the overall robustness of the U.S. dollar and the Federal Reserve's commitment to maintaining a tighter monetary policy stance.

WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU)

USDU Performance Since Inception

As the name suggests, the WisdomTree Bloomberg U.S. Dollar Bullish Fund is an attractive option for investors who hold a bullish outlook on the U.S. dollar. This fund can diversify traditional stock and bond portfolios due to its negative correlation with international stock and bond returns.

USDU invests in short-term currency futures and U.S. Treasury securities, focusing on liquid currencies to provide total returns surpassing the Bloomberg Dollar Total Return Index. It enables investors to leverage an appreciating dollar against foreign currencies effectively.

USDU offers broad exposure to the U.S. dollar against a basket of 10 global currencies. It aims to benefit from a strong U.S. economy, rising interest rates, and geopolitical uncertainties. Its value proposition centers on the U.S. economy's strength and stability, making it an appealing choice for risk-averse investors.

Invesco CurrencyShares Swiss Franc Trust (FXF)

FXF Performance Since Inception

The FXF ETF provides investors with the opportunity to participate in the Swiss franc's performance relative to the U.S. dollar, with its value rising when the franc gains momentum and falls when the dollar rises. FXF is an apt choice for investors looking to safeguard themselves against potential currency exchange rate fluctuations or those who are betting on a decline in the U.S. dollar's value. It uniquely stands out as the exclusive ETF option for individuals interested in gaining exposure to the CHF/USD exchange rate. The Trust's primary objective is to mirror the Swiss franc's price in U.S. dollars, offering both institutional and retail investors a straightforward and cost-efficient means of reaping investment advantages akin to holding Swiss francs.

WisdomTree Emerging Currency Strategy Fund (CEW)

CEW Performance Since Inception

The WisdomTree Emerging Currency Strategy Fund is an actively managed fund targeting a selection of currencies from emerging market nations across Latin America, Asia, emerging Europe, and the Middle East/Africa Region. Although the fund's contracts have an ultra-low duration, many of the currencies within it remain highly volatile. Nevertheless, CEW serves as a high-quality choice for investors seeking comprehensive exposure to emerging foreign currencies worldwide.

Invesco CurrencyShares Japanese Yen Trust (FXY)

FXY Performance Since Inception

For those keen on tracking the Japanese yen's price in U.S. dollars, the Invesco CurrencyShares Japanese Yen Trust provides a convenient solution. FXY demonstrated a robust 10%+ gain in the last quarter of 2022 and the first month of 2023, aligning with J.P. Morgan's bullish yen outlook, making it a promising option for Forex investors seeking new opportunities.

FXY offers exposure to the Japanese yen, making it valuable for investors interested in Asian markets amid Japan's economic innovation and adaptation. With a market value of $178 million as of July 14, 2023, FXY holds potential for appreciation, particularly if the yen strengthens due to factors such as Japan's economic recovery, fiscal stimulus, or geopolitical tensions. It earns its spot on the list as the yen is perceived as undervalued against the dollar, and FXY offers a cost-effective and liquid avenue to enter the Japanese currency market.

The underperformance of this ETF, as suggested by its negative compounded returns, is attributable to the weak JPY. This weakness is largely contributed by the interest rate gap between Japan and US. The potential for this ETF is strengthened by the hope of rebound and recovery in the Japanese Yen.

Invesco CurrencyShares Euro Trust (FXE)

FXE Performance Since Inception

The Invesco CurrencyShares Euro Trust focuses on tracking the euro's price in U.S. dollars. What sets FXE apart from the other funds on our list is that it directly holds euros instead of using derivatives like futures contracts. If you anticipate that the euro could strengthen in comparison to the U.S. dollar, this ETF presents a strategic choice to enhance a diversified portfolio.

Like most currency ETFs, FXE is not intended for long-term holding. It's a suitable choice for investors who believe that the euro is undervalued when measured against the dollar. In the event of euro appreciation, FXE's value is likely to rise. Likewise, recent losses in the fund can be attributed to the dollar's recent strength.

FXE provides exposure to the European currency without requiring you to open a foreign currency account or engage in Forex market trading. As of July 14, 2023, it boasts a market value of $300 million, indicating a strong market presence and growth potential, especially with Europe's ongoing economic recovery. This option enriches your portfolio by offering a diversified and liquid means to access the euro, one of the world's most widely traded and influential currencies.

What are Forex currency ETFs?

Forex currency ETFs, or exchange-traded funds, are investment vehicles that offer individuals exposure to foreign exchange markets and various currencies. These ETFs enable investors to participate in currency movements and exchange rate fluctuations, just like trading individual currencies. They function much like traditional ETFs, allowing investors to buy and sell shares on stock exchanges, but instead of holding stocks or bonds, they track the performance of foreign currencies.

Currency ETFs can represent single currencies or a basket of multiple currencies, and their portfolios often consist of currency futures contracts. These investments are both a means of diversifying one's portfolio and a way to speculate on currency movements, with potential risks and rewards. Currently, the currency ETF market is relatively small, with a limited number of options available, and it includes both traditional currency ETFs and cryptocurrency-focused ones.

How do currency ETFs work?

Currency ETFs operate as financial instruments that combine characteristics of both stocks and Mutual Funds. Like stocks, these exchange-traded funds are traded on stock exchanges, allowing investors to buy and sell shares. However, similar to Mutual Funds, they pool investors' funds to create portfolios that track specific asset classes, sectors, or benchmark indexes.

Essentially, ETFs are designed to provide an efficient and cost-effective means for investors to trade currencies during regular market hours. They offer a way to gain exposure to the foreign exchange market, which is the largest global market. Such ETFs are essentially managed portfolios focused on currency investments, and they come in various forms, some backed by foreign currency bank deposits and others not.

Investors turn to currency ETFs for their Forex market exposure, as well as to reduce risks and transaction costs associated with currency trading. These funds primarily derive their value from changes in spot exchange rates, making them integral for currency investors.

Currency ETF managers employ diverse strategies to achieve their fund objectives. These strategies may include holding cash/currency deposits, short-term debt in specific currencies, and Forex derivative contracts. ETFs have democratized access to foreign exchange markets, making them more accessible to a broader range of investors.

Currency ETFs often serve as diversification tools within traditional investment portfolios and offer opportunities for arbitrage between currency pairs. They can also act as hedges against macroeconomic events. Depending on the product chosen, investors can gain exposure to different currencies or diversified baskets of currencies, each presenting distinct risk-reward profiles. The principles of diversification and risk management, fundamental in modern finance, are equally relevant when participating in currency markets through these ETFs.

What are the factors that affect currency ETFs?

Several factors influence the performance of currency ETFs, and understanding these factors is crucial for investors. Let's delve into the key factors that can affect currency ETFs:

How to find the best currency ETF to invest in?

Experts suggest the following steps to fund the best currency ETF to invest in

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