Three Ways to Win with a Strong U.S. Dollar

By Ron DeLegge

May 01, 2010 at 04:00 AM

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How can you take advantage of a strengthening U.S. dollar?

The first way is to own dollar-denominated securities. The total U.S. stock market (VTI) which measures the performance of large, mid and small cap stocks is ahead by 5.98 percent (as of the March 24 market close). Mid cap (MDY) and small cap stocks (IWM) have led the rise.

Meanwhile, foreign stocks in developed countries (EFA) and emerging market stocks (VWO) have lagged. Currency weakness is putting a damper on the performance of European (VGK) focused investments.

A second way to profit from a rising dollar is to bet against foreign securities. For funds that short foreign stocks with 3x daily leverage see ticker symbols DPK and EDZ. For funds that use 2x inverse daily leverage, see symbols EFU and EEV.

A third way to capitalize on a strengthening dollar is to bet against commodities.

Because commodities are priced in dollars, their value generally falls when the dollar rises. For example, the iShares S&P GSCI Commodity Index Trust (GSG) has a 4.68 percent loss for the year. GSG tracks a basket of 24 different commodities futures contracts like aluminum, livestock and natural gas.

The ProShares UltraShort DJ-UBS Commodity ETF (CMD) is ahead by 11.30 percent this year. CMD aims for 2x daily inverse performance to a basket of 19 commodities. Sector components within the underlying index include agriculture, energy, livestock and metals

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