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Two ETFs to Play the Dollar’s Decline

The Fed has hinted that it plans to purchase another round of long-term Treasuries next week in hopes that it will push rates lower and encourage lending and help revive the sagging economy . As with anything in the markets these days, there are ways to play the Fed's moves with exchange traded funds (ETFs).

The worry for many U.S. investors is the future of the greenback, because more dollars in circulation dilutes the currency's value, says Ben Baden for U.S. News & World Report . [ The Rush to Foreign Currency ETFs. ]

Although the effects of quantitative easing will be keenly felt one way or another, investors can take steps to alleviate the impact on their portfolios.

The dollar remains the undisputed global reserve currency.Experts argue that it's important to be diversified among currencies so that you're protected if the dollar falls in value. Some ETFs (such as Rydex CurrencyShares ) allow investors to invest in physical currencies, while others (such as WisdomTree ) invest in non-U.S. money market securities or a combination of money market instruments to give exposure to non-U.S. money market securities or rates. [ Markets, ETFs Waiting to Exhale On Eve of Elections. ]

And then there's the basket approach, with a an ETF such as the PowerShares DB G10 Currency Harvest (NYSEArca: DBV) which tracks currencies of the 10 developed countries that make up the G10. The fund uses the three-month interest rates of the G10 currencies and goes long on (makes a bet for) the three with the highest rates, and shorts (makes a bet against) the three with the lowest. It rebalances each quarter. Year-to-date, the fund is flat, and it returned more than 20 % in 2009.

WisdomTree Emerging Currency Fund (NYSEArca: Our Guide to Currency ETFs.]

Read the disclaimer ; Tom Lydon is a board member of Rydex|SGI.

Tisha Guerrero contributed to this article.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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