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3 Fund Picks for Currency Exposure

A.J. D'Asaro

A. J. D'Asaro: There are three types of funds in the multi-currency category. The first is short-dollar developed-markets currency. The second is short-dollar emerging-markets currency, and the third is absolute return dollar-neutral currency strategies.

The short-dollar strategies can be thought of as having a beta to the inverse of the U.S. dollar index. These are appropriate for investors who have a long-term negative view on the U.S. dollar or wish to hedge their purchasing power abroad using a fund.

In contrast, absolute return currency funds don't require a view on the direction of the U.S. dollar. These funds are going long and short foreign currencies, which means that they benefit from a decline or an increase in those currencies versus each other versus the U.S. dollar.

For those investors looking to hedge their exposure to the U.S. dollar: In the developed-currency space, Franklin Templeton Hard Currency (ICPHX) and Merk Hard Currency (MERKX) remain top picks, both with Silver ratings.

In the emerging-markets currency space, Eaton Vance Diversified Currency Income Fund (EAIIX) remains a top pick with a Bronze rating. Currently, all absolute return currency funds are rated Neutral due to a short track record and a difficult currency environment.