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?
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
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
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
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
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
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
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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