The Best Currency ETF of 2020 Will Surprise You

·4-min read

China may be deemed as the epicentre of the coronavirus pandemic but the country’s economic growth and the currency speak of a completely different story. In fact, among the emerging market pack, China is expected to log growth this year. WisdomTree Chinese Yuan Fund CYB is up 9.3% this year compared with 5.8% losses in theInvesco DB US Dollar Index Bullish Fund UUP. Not only this, CYB has been the best-performing currency ETFs so far in 2020.

China’s yuan has been gaining for the sixth successive month, the longest streak since 2014. China’s apparent efficiency in handling the coronavirus pandemic as opposed to the other countries or continents has probably given strength to the yuan this year.

The continuous inflow toward China’s bonds and stocks will probably make the currency the strongest in about three decades, predicted by one yuan bull, as quoted on Bloomberg.“There is an appetite for China assets all over the world and I think that will continue,” said Paul Sandhu, head of multi-asset quant solutions at BNP Paribas Asset Management, as quoted on Financial Times.

China’s onshore markets have amassed about tens of billions of dollars worth of foreign investment this year thanks to equity gains backed by its economic recovery. This in turn strengthened demand for the renminbi that is needed to pick shares in Shanghai and Shenzhen, the Financial Times article noted.

The same was the case for the Chinese bond markets. While the entire developed markets were panting for bond yields or current income, China offered better yields. KraneShares CCBS China Corporate High Yield Bond USD Index ETF KKCB and VanEck Vectors ChinaAMC China Bond ETF CBON yield about 4.82% and 2.98% annually, respectively. These yields were solid compared with less than 1% yields offered by benchmark U.S. treasury yields. This has made sure fund inflows to the Chinese bond market too.

With the Fed likely to keep rates at the rock-bottom levels and China not following such extreme easing measures as yet, analysts expect more inflows to the Chinese asset market. Biden’s win in the U.S. presidential election also had a positive impact on the yuan as investors took his win as a possible improvement in the U.S.-China trade relation.

Not only this, China has become the leader in developing a Central Bank Digital Currency (CBDC). The Asian giant accomplished a trial of the DC/EP, as its digital currency is known, in September and also started rolling it out on major e-commerce platforms within the country, as quoted on investopedia.

The article published on Investopedia noted that the DC/EP is backed by yuan deposits held by China's central bank and has been under development for more than five years. For this, banks need to convert a part of their yuan holdings into the digital form and allocate them to businesses and citizens via mobile technology. So, no wonder, the yuan is flexing muscles.

Against this backdrop, below we highlight the fund CYB in detail.

CYB ETF in Focus

The fund provides cost-effective exposure to the currencies and interest rate in the rapidly evolving Chinese currency. The fund has, however, a small asset base of $35.3 million. It charges 45 bps in fees. The fund has gained 15.5% and 10.7%, respectively, in the past five and three year period, marking the best performance in the currency ETF space.

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Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research Reports
WisdomTree Chinese Yuan Strategy ETF (CYB): ETF Research Reports
VanEck Vectors ChinaAMC China Bond ETF (CBON): ETF Research Reports
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