Euro Shakes Create Multi Currency Opportunity

by | Sep 23, 2011 | Archives

The euro is shaky and creates multi currency investing opportunity.

euro chart

This five year chart of the euro versus the US dollar from shows how the euro has fallen recently against the US dollar.

Keep in mind the dollar has been weak itself so a currency that falls versus the greenback is really weak.

Many investment analysts believe Greece will default and European governments are stalling to let banks increase capital to survive the financial crisis this will create.

For safety diversify in numerous currencies.

The easiest way to get the broadest diversification is with an international fund or an ETF that follows the MSCI All Country World Ex USA Investable Market Index which covers over 6,000 securities in 44 countries.

A global fund that fits this bill is the Invesco Global Advantage Fund C (symbol GADCX)

An ETF that invests in the MSCI All Country Wordl Index is iShares MSCI ACWI Index Fund (ACWI).

This ETF  is an efficient way to invest globally and has an expense ratio 0.20% per annum, the lowest cost international ETF and less than half this sector’s standard expense ratio.

The fund has over $50 billion in assets so it replicates the entire index and provides incredible diversification.

vanguard etf

This is a simple bet on non US securities around the world.

The downside to these funds is they have the euro as part of their base.

Previous messages have looked at the benefits of investing in a commodity currency ETF.

During inflationary times, commodity prices are likely to rise.  This means that commodity rich countries are more likely to have trade surpluses which help make a currency strong.

WisdomTree Dreyfus offers a Commodity Currency Fund (CCX) since last year.

This is an actively-managed ETF with broad exposure to money market rates and currency movements of  major commodity-producing countries in major export and geographic sectors.

Commodity prices support commodity currencies during accelerating inflation yet have less risk than pure commodities. Commodity-exporting countries also tend to offer higher interest rates.

The CCX ETF can hold up to 10 currencies on an equally-weighted, annually selected, and rebalanced quarterly approach. The fund employs daily active management of the underlying investments. The fund invests in Australia, Brazil, Canada, Chile, Indonesia, Mexico, New Zealand, Norway, Russia and South Africa.  Interestingly these are also most of the currencies we chose in the portfolio above based on a different analysis.

The fund invests primarily in short-term U.S. money market securities and forward currency contracts and currency swaps. In order to reduce interest rate risk, it generally expects to maintain an average portfolio maturity of 90 days or less.

A narrower approach to diversification is to invest in European non euro currencies. Europe will not disappear during this crisis but you can bet that the market will overreact.

iShares MSCI United Kingdom Index Fund (EWU) invests in giant cap firms traded in London in pounds.

Global X FTSE Nordic 30 ETF (GXF) invests in the largest companies in Sweden, Denmark, Norway and Finland.  Only Finland uses the euro; Sweden, Denmark, and Norway use their kroner.

Another approach is to invest in Emerging Europe. SPDR S&P Emerging Europe ETF (GUR) invests in Poland, Russia, Czech Republic, Turkey and Hungary.

For a slightly broader diversification SPDR Barclays Capital Emerging Markets Local Bond ETF (JNK) diversifies globally in investment-grade sovereign debt of emerging markets that pay higher yields.

Another way to speculate on euro weakness is to borrow euros at very low interest rates (below 3%) and invest in your own diversified portfolio of stocks and bonds denominated in safer currencies that pay higher returns. Jyske Global Asset Management at in Denmark specializes in this service for accounts of $100,000 or more.  

You can get more details on how to do this: JGAMs Senior VP Thomas Fischer at

For smaller amounts, one easy but speculative alternative investment against the euro is a Euro Short ETF.   The ProShares UltraShort Euro ETF (symbol  EUO NYSE) is an example.  This ETF is leveraged 200% against the U.S. Dollar price of the Euro.

In other words at the time this article was written that ETF held about 900 million in cash and had dollar forward contracts against the euro of about 1,800 hundred million.

If the euro falls versus the US dollar, then this ETF will rise in value.

This is a pure speculative bet that the euro will fall which many investors do not feel is a gamble at all.

You can also sell a Euro Long ETF short.  Take for example the WisdomTree Euro Currency ETF (EU).   This ETF is considered a long Euro ETF. Selling this type of ETF short or buying a put on the share in effect speculates against the euro.

A Word of Warning

The chart above also shows why there is considerable risk in shorting the euro.  Had you taken the  short position in October 2008 or April 2010 you would have suffered substantial losses.

Thomas Fischer and I will review how to invest in the this scenario at our October 7-9 , 2011 International Investing & Business seminar.


Gary Scott’s latest report “Cash In Crash” is available at $4.99

Learn about Gary Scott’s Multi Currency Report “Borrow Low Deposit High”