ENR sent this note in their April; Advisory Update:
ENR Global Currency Sandwich
Investment Objective: To provide a fundamentally strong and diversified portfolio of foreign currencies to hedge against the long-term decline of the U.S. dollar. Our investment criteria for selecting currencies include those units harboring a combination of the following: trade surpluses, budget surpluses, low net relative debt compared to other regional partners, a high savings rate and in some circumstances, tax reform, which is bullish for FDIs or foreign direct investment. Some currencies, however, might not nurture all of the above characteristics but should at least maintain several to qualify in our currency basket.
2014 ENR Global Currency Sandwich:
British pound (GBP)
Norwegian krone (NOK)
Swedish krona (SEK)
New Zealand dollar (NZD)
Singapore dollar (SGD)
Mexican peso (MXN)
The U.S. dollar broke important support levels recently after weak economic data sparked a sell-off. To-date, the best-performing currencies against the dollar include the Indonesian rupiah (+6.8%), the New Zealand dollar (+4.7%) and the Japanese yen (+3.7%).
The U.S. Dollar Index also breached important support levels (see next page) and is now technically oversold on a short-term basis. We remain bullish on the dollar this year as the Fed continues to wind down its asset purchases, longer term interest rates resume their upward climb and rising macro political instability drives investors back into the greenback. The Dollar Index has declined 0.82% in 2014.
The primary wildcard driving our bullish outlook is the American economy: if the United States doesn’t start to recover following a bleak first quarter – driven mostly from a series of unrelenting weather in the Northeast from December to February – investors will accelerate dollar sales. Thus far into late March, economic reports have shown a marked improvement. The consumer, however, has been slow to boost spending recently and this might be due to inclement weather rather than a reluctance to spend.
In 2014, the ENR Global Currency Sandwich has gained 2.94%, including gold’s 13% advance. Excluding gold, the sandwich is up a cumulative 1.25% with the kiwi up 4.7%, the NOK up 1.9% and the SEK rising 1.7%. The worst-performing unit in our basket this year is the Mexican peso, down under 1%.
The New Zealand dollar has been on a tear this year hitting all-time highs vis-à-vis the American dollar recently. The NZD recorded a third consecutive monthly trade surplus after dairy exports to China touched a record in February. The Reserve Bank of New Zealand is also likely to be the first major central bank in the region to hike rates this summer. We remain constructive on the kiwi and continue to recommend exposure.
click on chart to enlarge
Investors looking to invest in the ENR Global Currency Sandwich can proceed with a $100,000 investment at Jyske Bank Private Banking. This portfolio service is part of your monthly Advisory Extra Bulletin.
For more details contact Thomas Fischer at Thomas@enrasset.com