ETF Talk: A Fist Full of Dollars
The U.S. dollar is down, down, down, and the greenback continues declining to unprecedented lows against the euro and other foreign currencies. Indeed, the dollar has fallen against most of the major currencies as traders increasingly expect the Federal Reserve to cut the target lending rate by as much as a half-percentage point in April to help revive flagging U.S. economic growth.
As the dollar’s downward trend shows little sign of reversing anytime soon, it’s no wonder that exchange-traded funds (ETFs) designed to take advantage of this situation are gaining interest.
With the Fed’s recent wave of interest rate cuts weakening the dollar’s value, and with more cuts likely on the way, the availability of currency ETFs just might offer a silver lining.
Currency ETFs provide a way to ride the appreciation of foreign currencies. These funds generally perform well when the U.S. dollar is in decline. The table below includes some of the most well-known, high-performing currency ETFs around — including ETFs from the first family of currency ETFs, CurrencyShares.
One currency ETF that has performed exceptionally well of late is the CurrencyShares Japanese Yen Trust (FXY), which tracks the performance of the Japanese Yen. Year-to-date, the fund is up more than 11%. Other top performers so far this year include the CurrencyShares Swiss Franc Trust (FXF) and the Euro Currency Trust (FXE), year-to-date racking up returns of about 12% and 7%, respectively.
While I am not recommending any of these ETFs right now, I do think it’s a good idea to be aware of how investors can profit from the falling dollar. Currency-related investments require you to guess correctly on the direction of the dollar, but be careful. A big risk is that the dollar can become oversold, and then regain its value quickly.
If you enter into any of these positions at the wrong time, the profits you hoped to earn may not materialize. In addition, the U.S. dollar is not going to fall forever. As a result, an investor needs to know when to stop depending on the dollar’s decline to profit and to begin betting on its rebound.
Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
