ETF Trends
ETF Trends

The dollar and its related exchange traded funds (ETFs) just can’t get a break and continue to lose ground to counterpart currencies. This doesn’t mean that investors need to sit idly by – there are opportunities when a currency is weak.

Most recently, policy makers have boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, report Ye Xie and Anchalee Worrachate of Bloomberg.  The currencies of choice are the euro and yen, which account for nearly 63% of new cash. Read more about using currency in your portfolio here.

The world is flush with dollars as the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors.  This, in turn, is making the dollar less of a diversifier for investors. To add to the currency’s woes, foreign corporations and economies are starting to feel the effects of a weak dollar, as well.

From an investor’s perspective, one can play the PowerShares DB Dollar Bearish (NYSE:UDN) which is up 7.6% year-to-date.

For a more optimistic approach, one can play the Euro through the Rydex CurrencyShares Euro Trust (FXE) which is up 6% year-to-date.

As for the yen, it can be played through Rydex CurrencyShares Japanese Yen Trust (FXY) which is up 0.4% year-to-date.

By holding non-dollar-denominated assets, such as emerging market equities, investors  can hedge against weakness. iShares MSCI Emerging Markets (NYSEArca: EEM) is up 60.9% year-to-date. Read about what emerging markets can do for your portfolio here.

A weak dollar can also be hedged with commodity ETFs, including United States Oil (NYSEArca: USO) and iShares COMEX Gold Trust (NYSEArca: IAU). Dollar-denominated assets tend to become cheaper for overseas buyers, which often leads to a spike in prices.

For more stories on currency ETFs, visit our currency ETF category.

Read the disclaimer, Tom Lydon is a board member of Rydex Funds.

For full disclosure, Tom Lydon’s clients own shares of EEM.

Kevin Grewal contributed to this article.

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.