Skip to Content
Fund Spy

The Almighty Dollar

Options for capitalizing on the dollar's rise.

Mentioned: , , , , , ,

On March 2, 2015, the U.S. Dollar Index--a trade-weighted index of the U.S. dollar versus six major currencies--reached its highest level since 2004. In the year to date, the index has gained 5.33%, on the back of a 12.25% gain in 2014. The dollar’s rise has been quick and steep, negatively affecting the returns of most international-equity, local-currency bond, and multicurrency funds in 2014. For the year, the Morningstar foreign large-blend category fell 4.98%, and the multicurrency category lost 1.64%--much of that weakness caused by currency exposure.

However, over the previous 12 years, foreign-currency exposure benefited investors. For the six-year period from February 2002 through March 2008, the U.S. Dollar Index slid 43.9%, a trend that greatly benefited funds with unhedged foreign-currency exposure. In the subsequent six years, from March 2008 to March 2014, the U.S. dollar traded relatively flat, apart from short-lived flight-to-safety rallies in late-2008 and mid-2010. The chart below shows the Inverse U.S. Dollar Index, which expresses the returns of a trade-weighted basket of foreign-currency exposure.

A.J. D'Asaro does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.