In his latest Forbes column (registration req'd.), the widely respected James Grant outlines a number of convenient options for hedging dollar investments. Among them:
● Buy Euros via Rydex's Euro Currency Trust ETF (FXE):
Each share is backed by 100 euros. Net asset value fluctuates with the euro-dollar exchange rate as well as with the interplay between interest earned and fees paid. Since launch, it's up 4.3%. "The shares are intended to provide institutional and retail investors with a simple, cost-effective means of gaining investment benefits similar to those of holding euros," says the prospectus.
● Buy Principal-protected Asian currency notes traded on the AMEX and administered by Citigroup:
The first note, Citigroup Global Markets Holdings (CAQ), matures on Apr. 28, 2008. The second, Citigroup Funding (CZJ), falls due on June 30, 2008, but instead of the Aussie dollar, it holds the Singapore dollar. Investors earn nothing prior to maturity. At maturity they earn the appreciation (if any) of the five relevant exchange rates, plus the $10 guaranteed principal. If it's the U.S. dollar that has appreciated against the Asian currencies, they receive only the $10. Note each stock currently trades at a discount to underlying value (in each case, average daily volume is less than 10,000 shares).
● Buy a closed-end fund that invests in hard, non-US currencies:
Franklin Templeton (FTF) offers a Hard Currency fund, with "hard" meaning, according to the prospectus, "currencies in which investors have confidence and are typically currencies of economically and politically stable industrialized countries."... the dollars of Canada, Australia and Singapore are the fund's idea of hard -- those plus the euro and the Swedish krona. Franklin Templeton levies a 2.25% sales charge on investments of less than $100,000 as well as a management fee (the portfolio is actively managed) of 1.2% a year.
(Hat tip: John Bethel)