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InvestWELL Report |
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Question:
Is it a good idea to buy international mutual funds in foreign currencies?
Answer:
Yes. Diversification by currencies is a really good idea if you plan on holding a mutual fund for a long time. In fact, many institutional investors use a 50/50 breakdown. The first 50% is the predictable local currency. The second 50% gives one a chance to benefit from risk reduction due to diversification. In the short run, a single currency effect on portfolio returns could be quite strong (both negative and positive). In the long run, currency movements tend to offset each other, giving rise to benefits of risk reduction.
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What is the main reason for holding different currencies in a portfolio?
A)
Investors like to have it, since almost all governments allow it
B)
It gives one bragging rights during parties
C)
Having foreign currency available for holidays
D)
Benefits of diversification by currency and risk reduction
Answer to the Quiz
at the bottom of the newsletter
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(Cumulative %)
InvestWELL Picks & S&P 500
Investment Strategy – MEMBER SECTION
Chart 1.
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- During the last month,
the US equities have managed to recover somewhat but failed to reach the previous high (Chart 2 & 3). Given the very high level of the oversold condition a month ago, the failure to reach the previous high would be considered bearish.
Charts courtesy of StockCharts.com
- During the last month,
the Canadian equities have managed to surpass the previous high. However, the rally has been narrowly based, which may be a sign that the Canadian market will be unable to push further ahead.
Charts courtesy of StockCharts.com
- Last month,
the US employers added 180K new jobs, while the unemployment rate fell to 4.4%, matching the 5-year low. It appears that outside of housing and manufacturing, the rest of the economy is doing quite well and continuing to create jobs.
- Last month,
the number of jobs in Canada increased by 51K while the unemployment rate was unchanged at 6.1%. The optimistic employment rate has lead many economists to speculate that the next interest rate move may be up rather than down. So far, the bank of Canada has proven quite capable of managing the country’s monetary policy.
- A United Nations panel has issued a stern warning that global warming will cause water shortages to spread and droughts to become more frequent as man-made emissions of greenhouse gases cause the Earth to warm. The panel also concluded that the poorest nations will be the most affected since they lack the financial resources to manage the change.
- Zoos are usually poor businesses that lose money each year and depend on government handouts just to keep them going. Yet it has not stopped Berlin’s Zoo from listing on the public stock market. The stock price of the Berlin Zoo has recently soared in union with the barrage of media scrutiny surrounding Knut, a bear that has been abandoned by his mother shortly after his birth in December. The little bear has inspired a new line of stuffed toys and a branded debit card. Now, the value of Knut's brand value is estimated at an amount of €10-million.
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(see
explanation)
Here is a direct quote from the Behavioral Section in last month’s Member newsletter:
“The next week is an option expiry week (3 rd Friday of every month) which normally has a slightly bullish bias. In a more intermediate term, we believe the market still has some down potential before establishing a support level that will hold.”
Charts 6 - 8: Advancing/Declining Line, AAII and Equity Put/Call Ratio
Charts courtesy of StockCharts.com
and DecisionPoint.com
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D is correct. Currency diversification allows for risk reduction.
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Thank you for reading InvestWELL Report.
InvestWELLFinancial.com
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