The Star-Ledger Archive
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Date: 2007/02/21 Wednesday Page: 063 Section: BUSINESS Edition: FINAL Size: 663 words
Dollar and change
Small investors have new ways to break into the big world of currency trading
By KARIN PRICE MUELLER
STAR-LEDGER STAFF
Currency trading has long been the domain of gargantuan hedge funds, institutional traders and investment
banks. The little guy hasn't stood a chance against these vast trading entities.
Until now.
There's a host of new investment opportunities for small investors who want exposure to the currency market,
known as foreign exchange, or Forex.
Before you dive in, it's important to understand the basics of what dollar moves mean.
People who think the dollar will rise want to have more of their money in domestic stocks and bonds, understanding
that some domestic firms have exposure to foreign markets and their revenues may be dependent on or based in foreign currencies,
said Darin Pope, a certified financial planner with United Atlantic Advisors in Secaucus. A strong dollar could mean lower
overseas earnings for these companies.
A weak dollar may be good news if you own stock in companies that do a lot of business internationally, as
those firms will show higher overseas earnings when the dollar is weak. "People who believe the dollar will fall want to have
more of their money in foreign stocks and bonds," Pope said.
When the dollar is strong, it's more expensive for overseas customers to buy U.S. products (bad for exporters)
and it's cheaper for Americans to buy foreign products (good for importers).
If you travel overseas, a weak dollar could mean services such as hotels will cost you more because of currency
conversion. Pope generally doesn't suggest people hold any assets in actual currencies.
"We do suggest exposure to hard assets and foreign stocks and bonds to hedge against the risk associated with
a declining dollar," Pope said. "This is just not a pure hedge or investment that moves in an exact opposite direction with
or against the dollar."
If you do want a pure hedge, there are many new mutual funds and exchange-traded funds that allow investors
to take a position on currencies, said Greg Allison, an investment analyst and CFP with RegentAtlantic Capital in Chatham.
If you want to add currency plays to your portfolio, here are some to consider:
Funds: The simplest of these currency mutual funds are essentially directional bets on specific currencies
or baskets of currencies versus the U.S. dollar, Allison said. For example, Rydex offers the Dynamic Strengthening Dollar
Fund (RYSBX) and the Dynamic Weakening Dollar Fund (RYWBX). "If you believe the dollar will strengthen versus other major
currencies, you buy the Strengthening Fund or, if you have the opposite view, choose the Weakening Fund," he said.
CurrencyShares: If you want to fine-tune your position to a single currency, you can try CurrencyShares ETFs.
These are like opening a savings account denominated in a foreign currency, Allison said. You can choose from the Australian
dollar, British pound, Canadian dollar, Euro, Mexican peso, Swedish krona or Swiss franc. "If you think the dollar is going
to decline against the pound, buy the British pound ETF. If you're planning a European vacation this summer and you're concerned
about the Euro appreciating against the dollar, convert your spending money to Euros now by buying the Euro CurrencyShare
and sell just before your flight," Allison said.
PowerShares: If you're looking for a sound long-term investment in currencies without having to make directional
bets, Allison said you should consider the new PowerShares DB G10 Currency Harvest Fund. This fund allows individual investors
for the first time to profit from a currency carry trade. "This ETF executes a classic carry trade, buying the three currencies
with the highest interest rates, and shorting the three with the lowest rates, then profiting off the spread," Allison said.
"This is an old strategy that hedge funds and large institutions have employed for years, and now investors can get it in
a convenient and inexpensive ETF format." 
