ETF Expert

At last count, you could invest in 15 different currencies through 24 unique ETFs. The yen and the euro have more than their fair share of possibilities on investments like the Euro Currency Trust (FXE), the Ultra Euro ProShares (ULE) and the UltraShort Euro ProShares (EUO).

Yet in the first 5 months of the year, the 5 currency ETFs with the highest returns seem to share several things in common. First, each represents a country that boasts higher interest rates than the yen or the U.S. dollar.

While it's not surprising that currencies around the world are gaining on the greenback, it's not a simple function of hedging against its "inevitable" fall. Rather, it appears that investors are winding up the carry trades by "going short" the yen or U.S. dollar while simultaneously "going long" higher yielding currencies. (That's a sign of risk taking… not risk aversion!)

The second thing that I noticed about this list is the fact that each country is rich in natural resources. Commodity inflation as well as the carry trade, then, seems to be telling us what's important.

Perhaps we shouldn't be surprised by stock market performance in these same countries either. South Africa (EZA), Canada (EWC), Brazil (EWZ) and Australia (EWA) have significantly outpaced the Vanguard FTSE All World exc U.S. (VEU).

You can read more about the potential return of the currency carry trade here. Or find out why "reflation ETFs" may be hitting their stride.

If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "live" or via podcast or on your iPod at this link.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.