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Four Ways to Profit from the Falling Dollar


How to play the greenback's decline.

King Dollar looks more and more like the court jester.

The currency fell to a 14-month low last week. In fact, the US dollar index is now off more than 15% from its March high. More to the point, some economists and strategists argue that the greenback's fall won't come to an end anytime soon.

Dr. Bill Witherell, chief global economist for Cumberland Advisors, wrote recently to his clients that he'll be looking for advance indications that the greenback's decline has come to a halt.

"We fear that wait could be a long one," he said.

So, how can investors position their portfolios for a continuation of US dollar weakness?

We checked in with investment advisers and asset managers for specific strategies they're using right now to play the falling dollar. We asked for actionable ideas that investors could use to profit from a weaker buck.

Vinny Catalano, president and global investment strategist with Blue Marble Research, tells investors to stick with American multinationals that generate a lot of sales from overseas.

"If you want to stay invested in the stock market, own multinational companies that benefit from the weak dollar," Catalano says. "This doesn't mean that you won't lose money in those investments. But, on a relative performance basis, they will do better than those that are purely US-centric."

Catalano himself plays the theme with the iShares S&P 100 Index (OEF), an exchange-traded fund that tracks the S&P 100 index.

Holdings in the ETF include Apple (AAPL), Exxon (XOM), IBM (IBM), Johnson &Johnson (JNJ), JP Morgan (JPM), Microsoft (MSFT), and Procter & Gamble (PG).

At the same time, Catalano says, investors would want to side-step the MidCap SPDRs (MDY) and the iShares S&P SmallCap 600 Index (IJR), exchange-traded funds that are more US-domestic focused.

As for specific names, Ryan Krueger, of Krueger & Catalano Capital Partners, uses his firm's own proprietary system to hunt the Russell 1000 for companies that generate a majority of sales from overseas.

The companies now scoring high on that proprietary screen, he tells us: Atwood Oceans (ATW), NII Holdings (NIHD), Itron (ITRI), Bunge Limited (BG), Scientific Names (SGMS), and First Solar (FSLR).

How about ETFs offering exposure to foreign currencies?

Morningstar's ETF analyst Bradley Kay told us he doesn't generally recommend currency ETFs as a hedge to a traditional dollar-dominated portfolio, as they're effectively just cash accounts in another currency.
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