The CurrencyShares Japanese Yen Trust (FXY) exchange traded fund (ETF) has pulled ahead of the major index ETFs SPDRs (SPY) recently, as Gary Gordon for ETF Expert notes. Possible reasons behind the yen’s recent increase and subsequent rise above SPY include the weakening U.S. dollar and the unwinding of the carry trade, according to Allan Robinson for Report on Business. Investors buy yen to pay off their low-interest Japanese loans they used to buy riskier higher-yielding securities and equities, which they are now selling, he explains.
This recent performance swap shows the importance of diversification within portfolios. One never knows when a certain sector, asset class or region will beat a major index, and diversification is one way investors can participate. Currencies are just one diversification tool, so make sure you know what you are buying, it fits with your portfolio and that it isn’t just for diversification’s sake.
Read the disclosure, as Tom Lydon is a board member of Rydex Investments.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.