Safe-haven currency funds have been gaining investor attention, owing to increasing geopolitical uncertainty. North Korea has been testing missiles to develop a nuclear program and safeguard itself from potential U.S. invasion, per North Korean leader Kim Jong-Un (read: ETF Scorecard for September 2017 ).
North Korea conducted its seventh nuclear test, an Inter Continental Ballistic Missile that flew over Japan, on Sep 14, 2017. Moreover, North Korea's foreign minister Ri Yong Ho suggested that another hydrogen bomb test in the Pacific Ocean might be in the cards.
Per the latest report by a Russian news agency, the RIA, a Russian lawmaker's recent visit to Pyongyang has revealed that North Koreans are prepping another long-range missile test. This missile can supposedly reach the west coast of the United States.
A Reuters article citing the RIA report stated the opinions of Anton Morozov and his colleagues who recently visited Pyongyang. "As far as we understand, they intend to launch one more long-range missile in the near future. And in general, their mood is rather belligerent," the article cited.
Moreover, the Reuters article also cited an U.S. official, per whom North Korea might be planning to test the missile on Oct 10, the anniversary of the founding of the ruling Korean Workers Party.
The latest non-farm payrolls data showed a decline of 33,000 jobs in September compared with expectations of 90,000 gains. However, analysts argued that the slowdown was due to the effects of Hurricanes.
Moreover, average hourly earnings increased 0.5% in September compared with a 0.2% gain in August. The market therefore expects an interest rate hike in December. This led to a rise in Treasury yields and the dollar. Treasury yields and prices move inverse to each other.
However, the Russian official's comments sent the prices of Treasury bonds higher, while dollar pared some of its earlier gains contributed by the latest non-farm payrolls data. Yen and gold rallied amid the latest threats (read: Rate Hike Odds Weigh on Gold ETFs ).
Let us discuss a few currency ETFs impacted by rising geopolitical risks relating to North Korea (see all Currency ETFs here ).
PowerShares DB US Dollar Index Bullish FundUUP
This ETF seeks to provide exposure to the U.S. dollar. Although the U.S. dollar surged after the average hourly earnings data was released, geopolitical concerns weighed on it. Per etf.com, UUP experienced $9.67 million in inflows between Oct 2, 2017 and Oct 6, 2017, primarily because of renewed hopes of a rate hike in December. It'll be interesting to see how the latest developments in the geopolitical space affect the fund's flows.
Notably, UUP has AUM of $657.9 million and charges a fee of 80 basis points a year. It has lost 7.9% year to date and 2.8% in a year (as of Oct 6, 2017). As such, UUP currently carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Japanese yen and Swiss franc funds gain a lot of traction in periods of rising geopolitical risks. Although Japan's geographical proximity to North Korea casts doubts over its reliance as a safe-haven currency, its significant foreign asset position makes it a good bet.
CurrencyShares Japanese Yen TrustFXY
This ETF seeks to provide exposure to the Japanese yen.
The fund has AUM of $110.7 million and charges a fee of 40 basis points a year. It has returned 3.3% year to date but lost 8.4% in a year (as of Oct 6, 2017). As such, FXY currently carries a Zacks ETF Rank #3 with a Medium risk outlook.
CurrencyShares Swiss FrancFXF
This ETF seeks to provide exposure to the Swiss franc.
It has AUM of $155.6 million and charges a fee of 40 basis points a year. It has returned 3.2% year to date but lost 0.7% in a year (as of Oct 6, 2017). As such, FXF currently carries a Zacks ETF Rank #3 with a High risk outlook.
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