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The U.S. dollar is on track for its best year in almost a decade. The Bloomberg Dollar Spot Index rose more than 7% this year, the best run since 2015. The strong trend is expected to continue next year as the policies of the incoming Donald Trump administration will boost growth and lift inflation.

Investors seeking to profit from this trend could consider ETFs such as Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) , WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU - Free Report) , iShares Russell 2000 ETF (IWM - Free Report) and iShares Currency Hedged MSCI EAFE ETF (HEFA - Free Report) .

A strong dollar attracts foreign money from investors seeking dollar-denominated returns instead of their home currencies. Additionally, energy costs in America decrease with a strong dollar, thereby lowering industrial costs, increasing profits and propelling the overall economy. 

Trump's policies for restricting illegal immigration, enacting new tariffs, lowering taxes and reducing regulations may boost the economy and inflation, thereby limiting the Federal Reserve's ability to cut rates, which is a positive for the dollar. The anticipation of increased deficit spending has propelled Treasury yields, offering further support to the dollar.

Further, the Fed cut interest rates but signaled a slowdown in the pace of monetary easing. This also helped the greenback to move higher. Many Wall Street analysts bet the dollar has more room to rise in 2025 as global economic growth may improve.

ETFs to Gain

Invesco DB US Dollar Index Bullish Fund (UUP)

Invesco DB US Dollar Index Bullish Fund is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies. This is done by tracking the Deutsche Bank Long USD Currency Portfolio Index - Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, Invesco DB US Dollar Index Bullish Fund allocates nearly 57.6% in euro and 25.5% collectively in the Japanese yen and British pound. 

The fund managed an asset base of $420 million, with an average daily volume of around 773,000 shares. UUP charges 78 bps of annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU)

WisdomTree Bloomberg U.S. Dollar Bullish Fund is another way to play the rise in the dollar directly. It offers exposure to the U.S. dollar against a basket of foreign currencies by tracking the Bloomberg Dollar Total Return Index. WisdomTree Bloomberg U.S. Dollar Bullish Fund exhibits strong negative correlations to international equity and bond portfolios. 

WisdomTree Bloomberg U.S. Dollar Bullish Fund has amassed $248.7 million in AUM and trades in a lower volume of about 213,000 shares per day on average. It charges 50 bps in annual fees.

iShares Russell 2000 ETF (IWM)

A strong dollar provides an edge to domestic-focused companies as small caps do not have much exposure to the international market. iShares Russell 2000 ETF will benefit from a rising dollar. It provides exposure to a broad basket of 1,976 stocks by tracking the Russell 2000 Index. iShares Russell 2000 ETF is the most popular and liquid choice in the small-cap space, with an AUM of $75 billion and an average trading volume of 24.4 million shares. 

iShares Russell 2000 ETF charges 19 bps of annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

iShares Currency Hedged MSCI EAFE ETF (HEFA)  

A strong greenback will compel investors to recycle their portfolios into the currency-hedged ETFs. For those seeking exposure to the developed market, iShares Currency Hedged MSCI EAFE ETF could be an intriguing pick. It targets the developed international stock market in Europe, Australasia and the Far East with no currency risk. iShares Currency Hedged MSCI EAFE ETF tracks the MSCI EAFE 100% Hedged to USD Index.

The fund has an AUM of $5.4 billion and trades in a solid volume of 633,000 shares. HEFA charges 35 bps in fees per year from investors and has a Zacks ETF Rank #3 with a Medium risk outlook.

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