There's more than one way to diversify clients' portfolios with currencies. Wealth Manager recently reported in, "Are Currencies the Holy Grail in Diversification?" that currencies can be an effective low-correlation tool. This currency strategy can be valuable, especially after the past two years in which almost every type of asset tended to go to a correlation of one during the worst of the crisis–the time when it would be most desirable for asset classes to have a lower correlation.
Because there are few truly low-correlation asset classes, especially in vehicles that are low-cost and easy to implement, it may be worth hearing about another way to use currencies in portfolios. With that in mind, Ben Warwick, chief investment officer at Quantitative Equity Strategies LLC in Denver and Memphis-based Sovereign Wealth Management, Inc., reports that currencies "have been a great diversifier for us this year." Warwick writes the "Portfolio Gourmet" blog for Wealth Manager. His firm uses the PowerShares DB G10 Currency Harvest Fund (Symbol: DBV), which is essentially a play on the currency "carry trade," says Warwick. Because it's an ETF, it is "liquid" and "cheap," he notes.
Using the Deutsche Bank G10 Currency Future Harvest Index–Excess Return, as its model, the DBV goes "long futures contracts on the three G10 currencies associated with the highest interest rates and short futures contracts on the three G10 currencies associated with the lowest interest rates," according to Deutsche Bank's DB Funds Web site.
