Don’t Lose Sight of “Real” Currency Moves Amid Digital Currency Debate!

The digital currency debate is really heating up!

* Heads of state, Treasury secretaries, central bankers, and major financiers all weighed in on cryptocurrencies at the World Economic Forum in Davos, Switzerland last week. Many were clearly skeptical about the role of Bitcoin and its competitors, and suggested stronger regulation was required.

* One of the larger crypto trading companies in Japan, Coincheck Inc., suspended withdrawals and most trading. That underscored another key risk – the risk cryptocurrency investors won’t be able to easily get their money in AND out of the market when they want.

* And of course, we introduced our Weiss Cryptocurrency Ratings in an effort to bring some independent, objective guidance to the marketplace.

But as interesting and revolutionary as the DIGITAL currency marketplace is, you can’t lose sight of what’s going on in the REAL currency market, either if you want to be a successful investor! One key recent development: The dollar is getting drubbed, plunging to its lowest level since 2014 last week.

Just look at this chart of the Dollar Index (DXY), an index that tracks how the greenback is performing against a basket of six major world currencies (with the euro most heavily weighted at 57.6%) ...

You can see that after a major rally in 2014, followed by a broadening top in 2015-2017, the DXY is now dropping like a rock. Some technical support remains in the 88 area, which corresponds with the previous tops in 2009 and 2010. But if that level gives way, the DXY could plunge all the way to the high 70s before finding firmer support.

The latest decline stems from comments Trump administration officials made in Davos. They seemed to tacitly endorse the dollar decline as a way to boost the U.S. manufacturing and export sectors, even as President Trump himself later attempted to walk that position back slightly.

Stronger economic growth in the eurozone is another factor. So are growing market expectations that foreign central banks will (eventually) start dialing back QE, just like the U.S. Federal Reserve already is.

Whatever the cause, the effect is clear: U.S.-traded ETFs, mutual funds, and American Depositary Receipts that track foreign stocks are benefitting. That’s because as the dollar drops against foreign currencies, U.S.-based investors enjoy an extra “currency kicker” to their returns!

Consider this: I created a Weiss Ratings Mutual Fund Screener called Best Performing Mutual Funds in the Past Year with a few very simple criteria. I stipulated that it could only list funds with a Weiss Rating of “C-” (HOLD) or higher and that generated a positive return in the past year. It also had to exclude funds that use leverage to enhance profits.

Those criteria generated a list of more than 26,100 results, including multiple share classes of the same underlying fund. A quick review of the top 10 funds, as well as dozens that ranked just below them, showed that internationally focused funds are dominating the performing race. Have a look ...

                                                                                                    Data Date: 1/26/2018

In first place is the Morgan Stanley International Fund Asia Opportunity Portfolio (MSAQX, Rated “C-”). Its top holdings include companies active in the Internet, education, hotel, and finance industries in China, Hong Kong, and elsewhere in Asia. Other China focused funds like the Neuberger Berman Greater China Equity Fund (NCEIX, Rated “B+”) and Matthews China Fund (MICFX, Rated “B+”) also dominated the Top 10.

Clearly, the dollar is oversold in the short term and we could see a bounce at any time. But the overall, longer-term trend is clear. Make sure you don’t get so wrapped up in the digital currency debate that you miss out on profit opportunities the real currency market is creating – in foreign ETFs, foreign mutual funds, foreign stocks, and more!

Until next time,

Mike