Global currencies are known for their volatility, which is reason enough to consider a currency exchange-traded fund, or ETF.
Take, for instance, 2022, a wild year for currencies that saw extreme volatility. Japan’s yen fluctuated by a 34% range for the year, while the British pound bounced around 24%. That was nothing compared to the Russian ruble, which experienced a 71% volatility range.
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That’s where currency ETFs can help. Such funds mirror a particular currency’s performance against a single currency, like the U.S. dollar. Currency ETFs can also track multiple currencies that trade 24 hours a day in foreign exchange markets. In doing so, currency ETFs give investors a valuable hedge against severe currency volatility, which helps reduce portfolio risk. Currency ETFs are also easy to add to a portfolio, as most brokerage firms and trading platforms offer them with fees as low as 0.35%.
While currency ETFs can be volatile, they offer Main Street investors a healthy dose of diversity and stability while giving fund holders access to some of the world’s most powerful currencies, such as the U.S. dollar, the British pound sterling and the Chinese yuan.
Which currency ETFs make the grade in late 2024 as military conflicts, widespread inflation and a divisive U.S. presidential election hold sway? Here are seven funds that should top your research list:
| Currency ETF | Expense Ratio | YTD Return* | TTM Yield** |
| Invesco DB US Dollar Index Bullish Fund (ticker: UUP) | 0.75% | 6.8% | 6.2% |
| WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) | 0.50% | 8.0% | 6.6% |
| Invesco CurrencyShares Euro Trust (FXE) | 0.40% | 0.5% | 2.2% |
| Invesco CurrencyShares Japanese Yen Trust (FXY) | 0.40% | -5.9% | 0.0% |
| Invesco CurrencyShares British Pound Sterling Trust (FXB) | 0.40% | 5.4% | 3.1% |
| Invesco CurrencyShares Swiss Franc Trust (FXF) | 0.40% | -2.4% | 0.1% |
| iShares Currency Hedged MSCI EAFE ETF (HEFA) | 0.35% | 14.0% | 2.8% |
*Based on net asset value (NAV) as of Oct. 15. **Trailing-12-month yield as of Sept. 30.
Invesco DB US Dollar Index Bullish Fund (UUP)
Year-to-date performance:
6.8% Total assets: $280.7 million Expense ratio: 0.75%
This U.S. dollar-based ETF follows the dollar against six of the world’s most prominent currencies: the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona and the Swiss franc.
The ETF currently holds a key Invesco fund that composes 14% of its holdings — the Short-Term Investment Trust – Invesco Government & Agency Portfolio (AGPXX) — and short-term U.S. Treasury bills make up about 36% of the fund. That mirrors the investment strategy of most primary U.S. currency funds: access to the U.S. Treasury bond and money markets, either directly or through actively managed funds.
Invesco describes the fund as a solid way to track the U.S. dollar; it’s designed to “replicate the performance of being long the U.S. dollar against the (six basket currencies).” That provides a solid portfolio strategy base that rewards investors when the U.S. economy is on the rise, which has been the case for most of the past 24 years.
WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU)
YTD performance: 8% Total assets: $173.7 million Expense ratio: 0.5%
This WisdomTree actively managed currency ETF closely tracks the Bloomberg Dollar Total Return Index, which in turn “tracks a long position in the U.S. dollar measured against a basket of developed- and emerging-market currencies (10 in total) which have the highest liquidity in the currency markets and represent countries that make the largest contribution to trade flows with the United States,” WisdomTree states.
Like most top U.S.-based currency ETFs, USDU holds short-term U.S. Treasury bills, and it has a 4.1% portfolio position in the WisdomTree Floating Rate Treasury ETF (USFR). USDU has demonstrated some volatility over the past decade, with NAV returns ranging from +9.4% in 2014 to -7.9% in 2017.
Investors who opt for UUP or USDU are betting on the strength and stability of the U.S. dollar, a robust American economy and geopolitical stability. If you’re overly concerned about rising global risks, either U.S.-based currency ETF offers an “even keel” option when weighed against other global currencies.
Invesco CurrencyShares Euro Trust (FXE)
YTD performance: 0.5% Total assets: $181.4 million Expense ratio: 0.4%
One of the most appealing global currency ETFs from a fee point of view (with a low 0.4% management cost), the Invesco CurrencyShares Euro Trust tracks the price of the euro against the U.S. dollar. The fact that the fund tracks 19 EU countries gives the fund some robust built-in diversity. The fund also refrains from holding futures contracts instead of relying on euros directly.
Strategy-wise, FXE investors are wagering on euro outperformance against the U.S. dollar, meaning that as the European economy goes, so goes FXE. That strategy has moderately paid off in the past year, with the fund up 6.2% as of Oct. 15. FXE hasn’t fared so well over the past decade, though, with a -1.9% NAV return.
Invesco CurrencyShares Japanese Yen Trust (FXY)
YTD performance: -5.9% Total assets: $437.8 million Expense ratio: 0.4%
The Invesco CurrencyShares Japanese Yen fund offers another low-cost entry point into the major currency world, this one based in the heart of the Pacific Rim. The fund strictly tracks the performance of the Japanese yen, which, despite its recent woes, has generally been one of the prominent global currencies over the past several decades.
Fund returns have lagged, with FXY off by 9.1% over the past three years and largely sluggish recently as the Japanese government ardently pursued a near-zero percent interest rate, a low-inflation economic policy that’s largely crimped yen performance. A case in point: The yen has underperformed the U.S. dollar, depreciating by 50% against the buck from late 2021 to the midpoint of 2024.
If you’re an investor who believes the Japanese economy will rise again (Japan’s central bank ceased its negative-interest-rate campaign in March and hiked its short-term policy rate to 0.25% in July as economic performance accelerated), then FXY could be a good portfolio landing spot.
Invesco CurrencyShares British Pound Sterling Trust (FXB)
YTD performance: 5.4% Total assets: $75.3 million Expense ratio: 0.4%
This smallish currency ETF is having a solid year, with a 5.4% NAV return year to date and an 11.4% return over the past year. FXB follows the venerable British pound sterling, the national currency of the U.K. and England’s baseline currency since 1694, a scant 13 years before it was united with Scotland as Great Britain in 1707.
Like the Japanese yen, the British pound sterling has largely underperformed over the past decade, as FXB’s long-term return attests. FXB is down 1.6% over the past 10 years, although that underperformance occurred mostly from 2014 to 2018. That suggests the U.K. economy has largely been getting back on its feet in the last five years, with the nation’s currency growing stronger.
With the country’s Labour Party back in power after the U.K.’s mid-2024 elections, the question for FXB investors is this: Can a new administration keep the momentum going for Britain? The nation has seemingly survived its “thumbs down” call on the EU. It appears to be gathering strength on the back of a rising economy after a mild 2023 recession and after the new prime minister, Keir Starmer, recently called for a more stable relationship with the EU.
Invesco CurrencyShares Swiss Franc Trust (FXF)
YTD performance: -2.4% Total assets: $154.5 million Expense ratio: 0.4%
This Swiss franc-based currency ETF is down moderately year to date but up 4.9% over the past calendar year. The fund closely tracks the franc and has a reputation as a safe-haven investment that can guard against economic upheaval that usually drags stocks down. That can easily happen in periods of high inflation and rising global military conflicts, both of which currently cast large shadows over the global economic landscape.
That’s why it’s a good idea to pair up currency ETFs like FXF with defensive assets such as gold, bonds, money market instruments, cash or cash equivalents, and relatively safer consumer-goods and utility stocks.
Before you buy into this ETF, start tracking the widely traded USD/CHF market, as FXF is the only ETF that weighs the currency balance between the U.S. dollar and the Swiss franc. By buying the ETF, you’re betting the franc will rise against the greenback.
iShares Currency Hedged MSCI EAFE ETF (HEFA)
YTD performance: 14% Total assets: $5.4 billion Expense ratio: 0.35%
This powerhouse currency ETF seems to have it all: a robust 2024 performance (up 14% year to date), a massive asset base that suggests investors are true believers in the fund, and a low expense ratio of 0.35%. HEFA also pays a trailing-12-month dividend yield of 2.8%.
Part of the draw comes from the fund’s mission statement, which offers easy exposure to midsize and large stocks in Europe, Australasia and the Far East with a hedge against any outsized foreign exchange risk. That widespread regional diversity offers an upside when economies grow in Europe and Asia, making the fund a solid choice for Main Street investors seeking long-term portfolio gains with a strong element of diversity.
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7 Best Currency ETFs to Buy Now originally appeared on usnews.com
