How and Why to Use Currency ETFs | ETF Trends

Exchange traded funds (ETFs) have made it simple and effective for individual investors to access the currency market, and the endless products make getting diversification in the asset class a snap.

Now that the U.S. dollar has reached a low for 2009, you may be wondering how you can take advantage of this.

Many investors, retail and institutional, are turning to the currency market in an attempt to alleviate the downside risk. While currencies typically aren’t used as long-term growth vehicles like stocks are, they can provide many benefits to an overall portfolio. One such benefit is that the currency market moves away from the broad market and, like commodities, is an alternative asset class, explains Investopedia.

A few more reasons investors like currencies:

  • Currencies also allow investors to benefit from the declining U.S. dollar. In the global economy, investors, while increasing the value of their assets, can still lose ground long-term with the declining dollar.
  • Currency also gives investors yield exposure, with different money market rates found in Australia vs. the EU, for example.
  • Currency fills a void in a large portfolio, and can help cut the downside risk.

The recent addition of the WisdomTree Dreyfus Emerging Currency Fund (CEW) will help investors get exposure to currency and yield in emerging and developing parts of the world. This allows investors to participate in currencies such as the Israeli shekel, Polish zloty, Chilean peso and Indian rupee, to name a few.

A couple of other ETFs on the market:

  • PowerShares DB G10 Currency Harvest Fund (DBV)
  • WisdomTree Dreyfus Euro (EU)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.