San Bernardino County Sun – Currency trading used to be a strategy employed by only the wealthiest investors and hedge funds, but a growing number of mutual and exchange traded funds make itpossible for individuals to try it for themselves, with significantly smaller amounts of money.
In the past, if you wanted to trade currencies, you’d need thousands of dollars to establish even a minimal position using futures contracts, said Jim King, director of portfolio management at Rydex Investments. Now do-it-yourselfers can get exposure through funds for a lot less as little as $1,000, depending on the minimums required by your fund supermarket.
The Rydex Strengthening Dollar Fund (RYSBX) and the Weakening Dollar Fund (RYWBX), launched last May, along with the first currency ETF, the Euro Currency Trust (FXE), launched in December, allow regular folks to speculate on the direction of the dollar or hedge currency exposure in portfolios heavy in foreign stocks.
In effect, this is “bringing a hedge fund-type strategy to the common man,” King said.
“A theme here at Rydex is giving people stuff they couldn’t do on their own in a mutual fund wrapper,” King said. “And currency trading is kind of the granddaddy of them all, it’s the epitome of what hedge funds love to do, and it’s something that people have trouble doing on their own.”
The question is, does the common investor really need to be messing around with hedge fund strategies? Some experts are skeptical about whether such funds are necessary in the average person’s portfolio, particularly if it’s well-diversified, with adequate exposure to international equities. Furthermore, the 1.7 percent expense ratio Rydex charges for its strengthening and weakening dollar mutual funds makes them an expensive gamble, said Richard A. Ferri, chief executive of Portfolio Solutions in Troy, Mich. and author of “All About Asset Allocation,” and other books for individual investors.
“The buy-and-hold investor has no business being in this kind of fund at all, because it’s purely speculative,” Ferri said. “It’s not for any of our clients, that’s for sure. We get currency diversification, but we get it for free because we own international equities in our portfolios through index funds. These funds are for traders, they’re for speculators. If that’s what you want to do speculate on the value of the dollar and you think you can beat the system, good luck!”
King, of Rydex, agrees the currency trade is not for novices.
