Two new mutual funds that track the rise and fall of the dollar are becoming more popular, according to Dow Jones. ProFund Advisers LLC recently launched the Rising U.S. Dollar ProFund and the Falling U.S. Dollar ProFund. Together, these funds are among the first mutual funds that invest in currencies.
The rising dollar fund, the only one of its kind, tries to match the daily performance of the U.S. Dollar Index, traded at the New York Board of Trade, which is calculated using a trade-weighted average of six foreign currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The falling dollar fund tries to match the inverse of the dollar index.
"There has been a hole in the offering of the U.S. mutual funds world - to not have any currency funds has really been not a good thing," says Andrew Clark, an analyst at Lipper.
The falling dollar fund is preceded by the Franklin Templeton Hard Currency Fund, which invests in short-term foreign government debt securities denominated in foreign currencies with stable or low inflation rates.
"People have always had the opportunity to trade currencies on the exchange through futures contracts, swaps and other instruments, but mutual funds bring it more mainstream for the retail investor," says Anthony Scamardella, vice president of marketing at the New York Board of Trade and a former currency trader.
Mutual fund profits from shifts in currency moves can be as high as 50% of a fund's return, according to Clark. But because the dollar is a reserve currency, U.S. investors, especially retail investors, are not used to tracking currency changes and making investment decisions based on those changes. "Even for professionals, speculating on the direction of the dollar is really dangerous. This kind of thing in the right hands offers a protection. In the wrong hands, it's a distraction and a money loser," says Roy Weitz, a fund watchdog who publishes the FundAlarm.com Web site.