Bearish sentiment against the dollar remains strong even with the Eurozone debt crisis as investors continue to fear challenges in the U.S. on debt and spending.

There are other ways to profit from a weaker greenback than just currency ETFs, some analysts point out. Certain exchange traded funds can help diversify U.S. dollar exposure.

Inflationary pressure is evident in just about every economy as of late, and to alleviate this, many countries are allowing their currencies to appreciate. Michael Rawson for Morningstar reports that this pattern will eventually lead to a weaker U.S. dollar, especially as the Federal Reserve is holding interest rates in the U.S. below inflation. [Dollar Rally Tarnishes Gold, Silver ETFs.]

“Despite widespread expectations for a weakening dollar in the long term, we don’t think dramatic portfolio shifts or direct foreign-currency holdings are called for. It’s devilishly hard to time currency movements. Compound the difficulty of timing the market is its zero-sum nature: The only way to make money in currencies is to take money from someone on the opposite side of one’s trades, ” he writes. [Dollar, Euro ETFs Back For Test of 50-Day Average.]

In a nutshell, currency ETFs may not be the best buy-and-hold play. Rather, they can be a good tool for investors that want to hedge or speculate for or against the U.S. dollar.

Below are a few ETFs that can be used as diversification away from the U.S. dollar, for those who are agreeing with the long term trend of a weaker U.S. dollar:

  • WisdomTree Emerging Markets Local Debt (NYSEArca: ELD): Invests in sovereign bonds of emerging markets, giving higher weights to those countries that display fiscal discipline.
  • Vanguard FTSE All-World ex U.S ETF (NYSEArca: VEU): This fund includes about every investable country besides the U.S. with a market cap weighted approach.
  • iShares S&P Global Materials (NYSEArca: MXI): As an indirect play on commodities, investors that want value would seek this out. Over the long term, the outlook for a funds such as this is positive.

WisdomTree Emerging Markets Local Debt


Tisha Guerrero 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.