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Potential Benefits of Currencies

Investors may enhance investment returns while potentially reducing risk by adding a currency component to their portfolios.

Consider the Merk Funds

Merk Hard Currency Fund   Merk Absolute Return Currency Fund     Merk Asian Currency Fund
Hard   Absolute   Enhanced   Asian

 

Potential Benefits of Currencies
Favorable Risk / Return? Low Volatility Uncorrelated Returns Active Management Efficient Frontier

Allocating to a fund that utilizes active management, such as the Merk Hard Currency Fund (MERKX), may capture opportunities and avoid potential loses in a portfolio. The chart below reflects the dates where MERKX bought and sold the Japanese yen:

All calculations based on daily data (09/01/2011 - 12/31/2013).

Currency returns have traditionally exhibited low correlations to many asset classes.

Source: Merk Investments, Bloomberg, Hedge Fund Research (HFR)

The following indices are used as proxies for the respective asset classes:

  • Large Cap Domestic Equity: S&P500
  • Small Cap Domestic Equity: Russell 2000
  • International Developed Equity (Int Equity): MSCI EAFE      
  • EM Equity: MSCI Emerging Markets
  • US Bonds: JPM US Bonds
  • TIPS: Barclays US Treasury TIPS 
  • EM Bonds: JPM EM Bond Index EMBi Global
  • Commodities: DJ Liquid Commodity
  • Real Estate: FTSE/NAREIT US All REIT
  • Hedge Funds:  HFRX Global Hedge Fund
  • G10 Currencies: Inverse DXY US Dollar
  • DBCR: Deutsche Bank Currency Returns Index
All data as of 12/31/2013. Calculations based on daily data 12/31/2008 – 12/31/2013

Based on implied measures of volatility, currencies are the least volatile asset class when compared to equities and bonds.

Source: Bloomberg, Merk Investments, Deutsche Bank

The following indices are used as proxies for the respective asset classes:

  • Equities - VIX Index: Chicago Board of Options Exchange Volatility Index.
  • Fixed Income USSV055 Index: USD Swaption 5 Year Fixed/Floating Volatility Index.
  • Currencies - CVIX Index: Deutsche Bank FX Volatility Index

All calculations based on daily data (12/31/2003 - 12/31/2013).
The y-axis represents annualized standard deviation of daily returns.

Investors may achieve more effective diversification by incorporating currencies or currency funds into their portfolios.

Source: Bloomberg, Merk Investments

Information contained herein may discuss Fund performance and holdings. Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. For performance current to the most recent month-end, please visit our website at www.merkfunds.com/fund. Through 09/30/14, the Merk Currency Enhanced U.S. Equity Fund Investor Shares (MUSFX) had a 1-year return of +20.61%, and a return of +21.53% since inception on 09/12/2011; the Merk Absolute Return Currency Fund Investor Shares (MABFX) had a 1-year return of +2.28% and a return of -0.11% since inception on 09/09/2009; the Merk Asian Currency Fund Investor Shares (MEAFX) had a 1-year return of -0.11%, a 5-year return of +0.19%, and a return of -0.37% since inception on 04/01/2008; the Merk Hard Currency Fund Investor Shares (MERKX) had a 1-year return of -5.43%, a 5-year return of +0.16% and a return of +3.29% since inception on 5/10/2005. All performance figures greater than 1-year are annualized unless otherwise specified. The expense ratio for MERKX, MABFX, MEAFX is 1.30% ; and 1.37% for MUSFX. In addition, these article excerpts and hyperlinks reference individual securities that may or may not currently be held by the Fund. Click here to view important information about the Funds, including their holdings. The views in these article excerpts and hyperlinks were those of the Fund's manager as of each article's publication date and may be subject to change.

Calculations for period 06/30/2012 - 12/31/2013. MABFX Investment Process enhancements implemented June 2012.

Currency Non-Directional represented by the Deutsche Bank Currency Returns Index.
Currency Directional represented by the Inverse U.S. Dollar (Inv. DXY) Index.
Managed Futures represented by the Morningstar®Diversified Futures Index (DFI).
Liquid Commodity represented by the DB Liquid Commodity Index.
Hedge Funds represented by the HFRX Global Hedge Fund Index.
Real Estate represented by the FTSE NAREIT US ALL REITs Index.

The efficient frontier chart below illustrates the potential diversification benefits that allocating to currencies may provide investors.

Source: Bloomberg, Merk Investments

The following indices are used as proxies for the respective allocations:

  • Equities/Fixed Income: Dow Jones U.S. Moderate Index.
  • Currencies: Deutsche Bank Currency Returns (DBCR) Index.

All calculations based on daily data since (12/31/2003 - 12/31/2013).

Click here to learn more about the Merk Funds.

Indices and definitions referred to may include the following. An investor cannot invest directly in an index:

Inverse U.S. Dollar (Inv. DXY) Index: The DXY is a generally well - known measure of the value of the US dollar versus major foreign currencies, and as such makes a relevant reference point for directional currency strategies. The inverse of the DXY is the value of the currency basket relative to the U.S. dollar, i.e. short dollar and long foreign currencies. Because the Merk Hard Currency Fund is long foreign currencies (and therefore short dollar), using the inverse DXY allows for the logical comparison of performance relative to the Fund.
Bloomberg-JP Morgan Asian Currency (ADXY) Index: a trade and liquidity weighted index of a basket of Asian currencies, excluding the yen, compared to the U.S. dollar.
S&P 500 Index (SPXT): a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. Performance figures assume that all dividends are reinvested.
MSCI EAFE (Europe Australasia Far East) Index: a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.
MSCI Emerging Markets (EM) Index: a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
Barclays Capital Aggregate US Bond Index: is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
FTSE NAREIT US All REITs Index: spans the commercial real estate space across the US economy. It provides exposure to all investment and property sectors.
DJ Liquid Commodity Index: serves as a liquid and diversified benchmark for the commodities' asset class.
Morningstar®Diversified Futures Index (DFI): provides a benchmark for exposure to global markets through exchange listed futures contracts in commodities, currencies and equities.
HFRX Global Hedge Fund Index: the global industry standard for performance measurement across all aspects of the hedge fund industry.
Barclays US TIPS Index: measures the performance of the US Treasury Inflation Protected Securities ("TIPS") market.
Chicago Board Options Exchange Market Volatility (VIX) Index: measures market expectations of near-term volatility of S&P 500 index options.
Deutsche Bank Currency Volatility (CVIX) Index: measures currency volatility; weighted average of the implied volatility across 9 major pairs of currencies.