Mutual funds: Dollar alternative

NEW YORK – Investors who are distrustful of the vagaries of the stock market and contemplate stuffing money under the mattress might first consider the nationality of the bills they hide away.

The dollar’s recent weakness has stirred concern among some investors that the greenback is only pausing before ceding further ground to other major currencies. A handful of mutual funds have been launched in the last two years to cater to investors uneasy about having all their assets in dollars.

Concerns about the dollar have taken on a new urgency in recent weeks after it hit a 14-year low against the British pound and a 20-month low against the euro. Axel Merk, who began the Merk Hard Currency Fund 18 months ago, contends the U.S. dollar is not the impregnable investment some once regarded it to be. “There is no such thing anymore as a safe asset,” he said.

Merk describes his fund as an international money market fund. “We don’t try to gamble. We don’t jump in and out on each piece of the economic news,” he said. The fund, which has about $51 million in assets, comprises nine currencies and gold. As of Nov. 30, some 45 percent of its holdings were in the euro, followed by the Canadian dollar at 13.6 percent.

Merk, who began his investment company in Switzerland in 1994, takes the unusual step of avoiding Asian currencies. He contends Asian governments are too concerned about safeguarding their exports to the United States and would try to intervene in their currency markets were the dollar were to weaken substantially.

“What we do is boring to some people. They are looking for returns of 20 percent a year,” he said. “We happen to be up steeply this year, but we don’t invest in dot-com companies, we don’t invest in high-flying companies. We are investing in cash.”

So far this year, boring has paid off: The Merk fund is up 11.68 percent.

But currency funds are not without their critics. Merk himself notes that his fund serves an investing niche and that in a flat currency market, investors would do better to invest in a traditional money market fund where the expenses would be lower.

Merk also said that if more investors move some assets out of dollars they could, even if only in a small way, hasten the dollar’s decline.

While Arijit Dutta, an analyst with fund-tracker Morningstar Inc., acknowledges some investors are uneasy about the dollar, he sees limited benefit from currency funds.

“Foreign stock funds can provide an investor with quite a bit of exposure to non-dollar assets. If the dollar were to suffer a sharp decline they would be protected to some extent,” Dutta said. Beyond that, he would look to foreign bond funds before considering currency funds, which he noted can be volatile and unpredictable.

Ultimately, for investors wary of the varying degrees of unpredictability in many investments, it might be wise to make sure their holdings are adequately diversified before they rely on stashes of dollar bills in their home to safeguard their financial well-being.