The greenback's relentless march toward a decade high is inspiring providers of exchange-traded funds.
WisdomTree Investments Inc. is starting an ETF that seeks to minimize exposure to export-reliant companies in the U.S., which typically suffer when the dollar strengthens. At the same time, the fund provider is ready for weakness in the greenback, listing a product designed to maximize holdings of exporters that would benefit from dollar declines.
American exporters have been some of the biggest losers from the U.S. currency's recent appreciation, with revenue at companies including International Business Machines Corp. slumping as overseas sales translate into smaller profits at home. That's caught the attention of policy makers including Federal Reserve Chair Janet Yellen, and investors struggling with patchy performance across U.S. equities.
(More: Defying market logic, small-cap funds ride the strong dollar to beat large caps)
“People are definitely concerned about it,” Eric Lichtenstein, senior managing director in New York for Cantor Fitzgerald LP's ETF business, said. For individual stocks, “you've seen it happening. It will remain to be seen whether these products take off and people embrace that strategy in an ETF.”
DOLLAR LEVEL
The Bloomberg Dollar Spot Index, which tracks the currency versus 10 of its major peers, touched a three-month high on Tuesday and is less than 2% below its highest in a decade.
The WisdomTree funds are the next evolution of the company's hedged-ETF offerings, according to Jeremy Schwartz, a director of research at WisdomTree in New York.
More than $42 billion has streamed into internationally focused ETFs that protect against foreign-exchange fluctuations this year, with WisdomTree products attracting almost half of net flows, data compiled by Bloomberg show.
“The big strong dollar has hurt earnings,” Mr. Schwartz said. “It's very topical. Certainly there is no more important theme than the dollar strengthening.”
The company's strong-dollar U.S. equity fund will invest in U.S.-based companies that get more than 80% of their revenue domestically. Its weak-dollar U.S. equity ETF will invest in companies that make more than 40% of their revenue overseas.
The funds started trading in New York on Tuesday.
