Who wouldn’t want to own the greenback? With the Dow and S&P 500 regularly hitting new highs and the economy continuing to put up good numbers, the U.S. is a tropical island in a world dominated by fiscal malaise and geopolitical chaos.
The prospect of higher rates is also propping up the dollar. If interest rates ratchet up domestically, foreign investors could borrow currencies with lower rates (like the Swiss franc and Japanese yen) and buy dollars, profiting from the differential. That is known as the currency carry trade, and can be directly accessed through the Powershares DB Currency Harvest ETF (DBV). However, advisors should note that the fund does generate a K-1 at the end of each year.
There are a few equity-centric ways to capture the rising-dollar trend as well. As the greenback goes up in value relative to other currencies, foreign goods are less expensive in the States. Retailers are a natural beneficiary. Consider the S&P Retail ETF (XRT) as a sector play.