This year hasn’t been good for the U.S. dollar. But a depreciating dollar does provide opportunities and an investor may capitalize on the benefits with some choice exchange traded funds (ETFs).
In the past eight months, the U.S. Dollar Index, a measure of the dollar against a basket of major currencies, dropped more than 15% and it is still falling, comments Ron Rowland for Daily Markets. A fast depreciating dollar is a good thing in the short-term, benefiting from cheaper and more competitive exports in the world market. Long-term consequences are that it could result in higher import costs and an eventual rise in inflation. (Dollar weaker after housing report).
Investors are offered ways to hedge against the weakening dollar with dollar shelters like:
Currency ETFs. The PowerShares DB U.S. Dollar Bearish (NYSEArca: UDN) is a direct play on the depreciating dollar – dollar goes down, ETF goes up. Or, an investor may invest in foreign currencies that he or she finds appealing. Note that speculating in individual currencies is riskier than investing in a broad index or an ETF that includes a basket of currencies. (More on currency ETFs).
- PowerShares DB U.S. Dollar Bearish (NYSEArca: UDN): up 9% year-to-date
- WisdomTree Dreyfus Emerging Currency Fund (NYSEArca: CEW): up 3.8% in the last three months
Precious metals. The more familiar precious metals like gold and silver have been used as a store of value for ages and it’s no different today. (More on precious metals).
- SPDR Gold Shares (NYSEArca: GLD): up 32.1% year-to-date
- iShares Silver Trust (NYSEArca: SLV): up 63.1% year-to-date
Commodities. Commodities (other than precious metals) such as oil, coal, and so on also tend to do well when the dollar depreciates. An investor may buy commodity funds or buy equity-based funds that produce commodities. (More on commodities).
- GreenHaven Continuous Commodity Index (NYSEArca: GCC): up 17.6% year-to-date
- Market Vectors RVE Hard Assets Producers ETF (NYSEArca: HAP): up 42.4% year-to-date
For full disclosure, Tom Lydon’s clients own shares of HAP.
Max Chen contributed to this article.
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.