Currency markets had an eventful 2014 with the U.S. dollar touching multi-year highs against a basket of major currencies. Improving U.S. economic data, escalating geopolitical tensions, diverging central bank policies around the world and chances of a sooner-than-expected rate tightening cycle in the U.S. were some of the factors contributing to a stronger greenback.
In fact, divergence in monetary policies across the globe was one of the primary factors for the strong advance in dollar this year against major currencies. While the Fed has wrapped up its QE program and is expected to start raising rates sometime this year, central banks of some of the major developed nations have stepped up their monetary stimulus program to stimulate their struggling economies.
Stronger U.S. recovery and speculations of a faster-than expected rate hike are leading investors to pull out capital from emerging markets and pour it into the U.S. stocks, causing the currencies of these nations to take a plunge (read:Â As Dollar Continues to Strengthen, Time for Hedged Currency ETFs?).
Given this, we have highlighted two of the best performing and worst performing currency ETFs of 2014 below. These were big movers in the currency market, and undoubtedly investors are expecting big things out of these currencies in 2015 as well:
Best Currency ETFs of 2014
Market Vectors-Indian Rupee/USD ETNÂ (INRÂ -Â ETF report)
Indian equity markets have posted stellar performances this year driven by optimism over the new pro-reform, business-friendly government led by Prime Minister Narendra Modi. In fact, the Indian economy has been witnessing improving macroeconomic conditions led by better-than-expected corporate earnings, a falling inflation level and improving manufacturing and industrial production. Moreover, steps taken by the RBI governor have been successful in narrowing the current account deficit.
These factors led the Indian rupee to be the best performing major currency worldwide against the dollar during 2014 and INR to be the best currency ETF this year (read:Â Best ETF Strategies for 2015).
The fund tracks the performance of the S&P Indian Rupee Total Return Index, providing exposure to exchange rate movement of the U.S. Dollar against the Indian Rupee. The product is, however, quite unpopular and illiquid with an asset base of under $2 million and average trading volume of 27,000 shares a day.
The fund charges 55 basis points as fees and has returned 14% this year. INR currently has a Zacks ETF Rank #3 or Hold rating.
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