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Chicago, IL – April 20, 2012 - Stocks and funds in this article include: PowerShares DB G10 Currency Harvest Fund (DBV - ETF report)), WisdomTree Dreyfus Emerging Currency Fund (CEW - ETF report)), iPath GEMS Asia 8 ETN (AYT - ETF report)). Eric Dutram looks at three ways investors can bet against the dollar with currency ETFs.
Bet Against the Dollar With These Three Currency ETFs written by Eric Dutram of Zacks Investment Research:
Although the European debt situation continues to dominate the headlines, investors haven’t really seen this transfer over into huge gains for the U.S. dollar. In fact, the greenback—as represented by the U.S. dollar Index—is more or less flat so far in 2012 as smooth trading has dominated the landscape throughout April.
Yet while the dollar has held firm in 2012, many investors remain long term bears on the world’s reserve currency due to America’s many economic issues. Debt levels are quite high at all levels of the American economy—federal, state, personal—and inflation has begun to creep higher in recent months (see Is The Bear Market For Bond ETFs Finally Here?).
Thanks to this, many analysts are advocating that investors position their portfolios to take advantage of the rise of alternative currencies or at least to spread their currency risk around. Unfortunately, this is generally difficult to do in a direct way as it usually requires a futures account or a gamble on the risky forex market where 200% leverage isn’t uncommon.
As a result, investors who are taking a more long-term approach, or are at least trying to remove some of the dollar risk from their portfolio, could be better served by looking at any number of short-dollar currency ETFs. Below, we highlight three of these funds which can all offer a basket approach that bets against the dollar, a strategy that can help investors to profit when confidence in the U.S. is tumbling or at the very least, reduce U.S. investment concentration.
While not strictly a ‘short-dollar’ ETF, this fund’s strategy makes it likely to be going up against the greenback on a pretty regular basis. That is because the fund tracks the Deutsche Bank G10 Currency Future harvest Index which looks to go long in developed market currencies that have relatively high yields and take short positions in currencies that have relatively low interest rates (read Commodity Currency ETFs Surge On Global Liquidity Push).
Thanks to this focus and the ultra-low interest rate policy from the Fed, this currency ETF ends up taking a large short position in the greenback. Along with the dollar, the product is also short in yen and Swiss francs, giving a nice mix from a geographic perspective.
In terms of long exposure, three commodity currencies dominate the list. The Norwegian krone, the Australian dollar, and the New Zealand dollar each receive a weighting of at least 30% giving the fund a definite tilt against the American currency.
For the rest of this ETF article, please visit Zacks.com at: http://www.zacks.com/stock/news/73324/bet-against-the-dollar-with-these-three-currency-etfs
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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