An old saying goes that when the U.S. sneezes, economies around the world and their exchange traded funds (ETFs) catch a cold. Yet this trend seems to be changing for two reasons, according to Jack Crooks for Money and Markets:

1. Economic power continues to shift from the West to the East.
2. Foreign powers are now more willing to inoculate themselves from weakness in the U.S. They’re doing this by establishing Sovereign Wealth Funds (SWFs), or government-sponsored investment companies.

Together, these two forces are going to reshape the investing landscape by pushing the dollar lower and currencies like the yen higher. Already, we’ve seen these investment funds move money into other more stable currencies such as euros and British pounds. As they become more aggressive, other currencies of other nations will benefit. One example being the Japanese yen. Crooks says that SWFs are going to allocate a much greater share of their investments to Asia as it continues to grow. For some countries, it will amount to investing in their home region. As a result, more dollars would be converted into the yen and other Asian currencies. In other words, keep your eyes on currency ETFs such as:

• CurrencyShares Japanese Yen Trust (FXY) - up 5.6% for the last three months, having launched in February
• CurrencyShares British Pound Sterling Trust (FXB) - up 9.4% year-to-date
• CurrencyShares Euro Trust (FXE) - up 11.7% year-to-date

Read the disclosure, as Tom Lydon is a board member of Rydex Investments. 

Tags: Currency ETFs