Tags: invest | dollar | strength | currency

WSJ: How to Protect Your Investments Against Continued Dollar Strength

By    |   Tuesday, 09 December 2014 12:41 PM

The dollar has soared in recent months, rising to a seven-year high against the yen and a two-year high against the euro last week.

Many experts think the rise will continue. That's a big deal if you invest in foreign stock and bond funds. Hopefully if you do invest in them, you already know whether they hedge their currency exposure.

The funds often buy their stocks and bonds with foreign currency. But the fund's shares are priced in dollars, of course. So the foreign currency must be translated into dollars for fund payouts and redemptions.

Some funds hedge their currency exposure, so you're at no disadvantage if the dollar rises. But some don't. With those funds, you're essentially betting the dollar will stay stable or fall.

So to deal with the dollar's rise, you can purchase funds that hedge.

"One question mutual-fund investors should ask for international funds is, 'How much is the portfolio manager hedging the FX exposure?'" Russ Koesterich, BlackRock's global chief investment strategist, told The Wall Street Journal.

He suggests investors seek international mutual funds or exchange-traded funds that at least partially hedge their currency risk.

You can also buy exchange-traded funds based on the dollar, but keep in mind that is an extremely risky strategy.

To be sure, the dollar has backed off its highs this week. "There's a risk reduction taking place. You may see a little bit of corrective moves in the recent trends," Ian Stannard, head of European currency strategy at Morgan Stanley, told Bloomberg.

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The dollar has soared in recent months, rising to a seven-year high against the yen and a two-year high against the euro last week.
invest, dollar, strength, currency
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2014-41-09
Tuesday, 09 December 2014 12:41 PM
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