Compared to the equities and fixed-income markets, the Forex currency market seems to have a mind of its own. For a well diversified portfolio, foreign currency exchange traded funds provide an alternative asset with a lower correlation to traditional assets.
So far this year, the average price share for currency funds dipped 2.4%, including a 0.8% depreciation in the month through Thursday, and the average annual performance over the last five years is a slightly negative 0.3%, reports Daisy Maxey for the Wall Street Journal.
Barry Young, a Houston-based private wealth adviser with UBS Wealth management, though, uses currency investments as a way to diversify away from the risks inherent in stocks.
For instance, Young explains that he invests as much as 10% to 20% of a client’s cash allocation in foreign-currency investments or hard assets as these investment categories typically do not move in unison with stocks and bonds.
Moreover, Young points out that as central banks become more aggressive with their monetary policies, there are more opportunities to capitalize on. [A Forgotten ETF Victim of the Strong Dollar]
“Asset prices are not reflecting fundamentals these days, but more so where the next major policy movement–monetary or fiscal–will be,” Axel Merk, manager of the Merk Hard Currency Fund (MHCIX), said in the article.