Currency Hedging
November 3, 2004 5:07 PM   Subscribe

Currency hedging for the (very) small investor. The re-elected Bush admin's economic and fiscal policies have me thinking the dollar will be headed down. What are people's experiences/recommendations on moving assets to non-US currencies? Should I use a traditional bank, or are there mutual fund houses that offer several different denominations of money market funds I can allocate between?
posted by bradhill to Work & Money (7 answers total)
Hold on, hold it. Okay I'm going to go out on a limb and say as a small investor you'll be losing more money on the currency transfer then you'd ever stand to gain. The Euro/Yen whatever would have to really stand to win against the dollar for it to actually help you.

Also as a small investor most your assets (house, car, wages) are tied up in the USD. You'd be basically betting against them.

I only say this because I, at one time, looked at doing exactly what you are doing. This is merely why I decided against it. I could possibly be very wrong and will concede to a correction.
posted by geoff. at 5:29 PM on November 3, 2004

i have investments (in the uk, paid for in pounds sterling) in (distinct) funds that invest in europe, the usa, and asia. those particular funds are mainly stocks/shares, but i'm sure the same exists for lower risk investments like bonds.

so i'd go with your last suggestion - talk to whoever you invest with and see what they have (ie these things do exist).
posted by andrew cooke at 5:34 PM on November 3, 2004

Ways to avoid a falling dollar for a US-based investor:

Foreign currency
Foreign stocks
Foreign bonds
Domestic natural resources stocks
TIPS and I-Bonds
Hard commodities
Precious metals

I know of no foreign currency money markets that will accept your smallish dollar deposits. If you are a risk-averse investor who trusts the Government's inflation calculation, I-bonds are by far your best bet (in terms of fees and ease).
posted by trharlan at 5:37 PM on November 3, 2004

You might be better off looking for US firms which are significant exporters who have not hedged their own forex heavily, and buy them. trharlan suggests US natural resources stocks, which is a good starting point, but you have to investigate - most exporters do their own currency hedging to some extent to try and reduce the volatility of their income. Also, the smart money was thinking what you're thinking now, months ago, so don't expect to win big. And you have to factor in the cost of your research effort in identifying these possible opportunities.

Personally as a non-USian a falling dollar hurts me. Most of my country's exports are USD denominated. Until we start doing most of our business in EUR, we'll be less and less competitive. So I have exactly your problem in reverse. Our only hope is that soon you'll be so badly in the shit you'll have to stop subsidising your "farmers"...

On the mutual fund front, look very very hard at the management fees. Also see whether you can find funds that invest in a foreign market's index, rather than being actively managed. If there is any benefit to be had by diversifying abroad, you as a small guy need to keep the costs as low as possible to avoid eroding it.
posted by i_am_joe's_spleen at 6:01 PM on November 3, 2004

Do what the Evangelicals do, and buy gold.
posted by interrobang at 6:20 PM on November 3, 2004

geofft: "You'd be basically betting against them."

Yo geofft, that's what hedging is - placing bets in opposite directions, so that you preserve your assets no matter what. You accept limiting the upside from your position in return for limiting the downside.

Your other observation, that the transaction costs might eat up the winnings from a small bet against the USD, could well be correct. Depends how badly you think the USD will go down.
posted by i_am_joe's_spleen at 6:27 PM on November 3, 2004

I_am_joe's_spleen has a good point. For a one-stop solution, check out Fidelity Export and Multinational, the biggest fund of its kind (Fidelity emerged from the last set of scandals squeaky-clean, and has awesome internal controls (I am a former employee)).

I am to lazy to do it for you, but you can spend a few minutes with excel and google, and get three data sets-- the fund, the S&P, and the USD index. See if the fund significantly outperforms the S&P in weak-dollar years. If it does, you have a winner.

Also, I should note that (while I once again agree with I_am_joe's_spleen, who is tied with majick and jessamyn for the "best of AxMe") you might have to delve deep into the footnotes to find an individual company's forex hedges. Even then, you may not find them.
posted by trharlan at 6:28 PM on November 3, 2004

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