Some exchange traded fund (ETF) investors might wonder how emerging markets benefit from our dollar. How it works is investors put their money to work in markets with a relatively stronger currency, and when that local currency strengthens even more, it enhances returns for the funds, explains Barbara Kollmeyer for MarketWatch.

Essentially, when you buy European stocks, those euros buy more U.S. currencies when you want your money back. Similarly, countries with strong currencies tend to have strong economies, which reflects in their country-based ETFs. It currently takes more than $1.41 to buy one euro and almost two dollars to buy one British pound. Also, the Canadian loonie is on par with the U.S. dollar, which hasn’t happened since 1976. Some ETFs that follow these countries and their year-to-date numbers include:

• iShares MSCI EMU Index (EZU) is up 17%
• iShares MSCI United Kingdom (EWU) is up 10%
• iShares MSCI Canada (EWC) is up 29%
• S&P 500 SPDR (SPY) is up 8%.

The euro has been one of the biggest benefactors from the U.S. rate cuts because it is growing in popularity as the currency of choice among international transactions. CurrencyShares Euro Trust (FXE) is up 10.0% year-to-date. The CurrencyShares British Pound Sterling Trust (FXB) is up 7.1% year-to-date.

Read the disclosure, as Tom Lydon is a board member of Rydex Investments.
For full disclosure, some of Tom Lydon’s clients own EWC and SPY.

Tags: Canada, Europe, EWC, EWU, EZU, Federal Reserve, KOL, United Kingdom

Share: Digg | Bookmark at Del.icio.us |