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Home > About Us > In the News > August 5, 2011

In the News: Market Watch

Co-portfolio manager Kieran Osborne tells MarketWatch that investors may not be aware of their U.S. dollar risk

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'Investing in U.S. companies with international operations may not provide as much upside potential to a falling U.S. dollar as one might think,' said Kieran Osborne, CFA charterholder and co-portfolio manager at Merk Investments, LLC. 'Investors should be aware that listed U.S. corporates generally utilize the U.S. dollar as their functional currency, and actively hedge income statement exposures to that functional currency, effectively nullifying any positive (negative) impact of currency price movements vs. the U.S. dollar. While U.S. exporters may benefit from a decline in the U.S. dollar, the upside potential may be contained due to corporate hedging policies.'

What’s more, Osborne said, all the money the Fed has thrown at the system has meant that asset classes are increasingly correlated. 'With recent poor economic data underscoring the weak U.S. economic recovery, QE3 may be on the table, which means more money printing and likely continuation of this trend,' he said. 'From an investment standpoint, it is increasingly difficult to diversify one’s portfolio, as uncorrelated asset classes are difficult to find.'[…] Currencies, he said, have historically exhibited low correlations to traditional asset classes, so from a diversification standpoint, may provide enhanced portfolio risk-return characteristics, while providing upside potential from a weakening U.S. dollar…"

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