In the News: Morningstar

Morningstar conference: Directional versus Non-direction currency investing

Morningstar Alternative Investment Strategist Nadia Papagiannis summarizes portfolio manager Axel Merk's presentation at Morningstar's ETF conference: "

Part IV: Directional versus Non-direction currency investing

In terms of investing, one can approach currencies directionally (long the USD versus single or multiple foreign currencies) or non-directionally. Nondirectional strategies include long or short the USD or foreign currencies, carry trade (long high-yielding and short low-yielding currencies), momentum (long appreciating or short depreciating currencies), and valuation strategies (long undervalued and short overvalued currencies). Both directional and nondirectional strategies can provide positive returns with low correlations.

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Some investors believe that currencies--for example, the USD--are highly correlated to stock markets and growth in an economy. Merk believes that this can be true over short periods of time but not over the long term. In addition, Merk believes that currency appreciation is only related to growth in countries that run current account deficits. Japan, in contrast, finances spending internally, and therefore the yen has appreciated despite a slow economy.