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The Dollar in Decline
The euro soared to its highest level ever against the U.S. dollar last week, trading above $1.40 for the first time since the currency was introduced in 1999.
(By Jacques Brinon -- Associated Press)
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"Currencies are a tricky animal, best left to professionals," said Alan Ruskin, chief international strategist at RBS Greenwich Capital. "And really staying on top of what's driving currencies is a bit of a full-time job."
Still, some individual investors may have a little more appetite for risk. For them, another option is a currency fund, similar to a mutual fund. Several are linked to the performance of the New York Board of Trade's U.S. Dollar Index, which tracks the value of the dollar relative to a basket of six other currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The index has fallen by more than a third since peaking recently in July 2001 and is down 66 percent so far this year.
Franklin Templeton Investments offers the Templeton Hard Currency Fund, which invests primarily in money-market instruments denominated in the currencies of foreign countries and markets with low inflation.
The Merk Hard Currency Fund is a no-load fund that invests in eight foreign currency investments, such as money-market instruments, from countries with strong anti-inflation policies. The fund also invests in gold, which is often seen as a hedge against inflation.
Another alternative is a currency exchange-traded fund, or ETF. They are traded on exchanges and therefore are priced throughout the day like a stock, rather than at the end of the day like a mutual fund.
For example, Rydex Investments of Rockville offers eight currency ETFs, called CurrencyShares trusts. Each holds one currency: the euro, Japanese yen, British pound, Australian dollar, Canadian dollar, Mexican peso, Swedish krona or Swiss franc. An investor buys shares in a trust; the value of the shares rises or falls with the value of the currency relative to the U.S. dollar. If the dollar falls, the shares gain.
Such vehicles can yield rewards, said David Petersen, president of Financial Services Advisory. But, he added, "as with every investment, somebody needs to watch it to say when you should exit."
Staff researcher Richard Drezen contributed to this report.
