Currencies

Leveraged Inverse Fund Profits If the Dollar Rises and the Euro Falls

Investors interested in protecting their assets during volatile market conditions may want to look at currency-based exchange-traded funds (ETFs), such as ProShares UltraShort Euro (EUO).

EUO is more than just a short investment that bets against the rise of the euro. It is correlated with twice the inverse of the performance of the euro against the dollar, so if the euro/dollar balance shifts in favor of the dollar and the euro falls in value, the fund is intended to produce positive returns equal to twice the magnitude of the change.

For investors confident the euro will go down, this investment could be lucrative. In general, leveraged ETFs like this one are intended as short-term trades. Since the euro vs. dollar is a zero-sum game, any thought of holding this fund for the long haul might be unwise, especially since it is a leveraged fund that is designed to move twice as much as with an unleveraged trade.

Keep in mind that the pricing of this fund will be affected by the value of the dollar. As a result, if the euro were to weaken, compared to a basket of global currencies, but the dollar did as well, this fund would produce flat returns.

The euro has performed well compared to the dollar during the most recent 12 months, so EUO has fallen by about 20% in that time. The fund currently is priced a few percentage points above its 52-week low and its expense ratio is 0.95%.

The ProShares fund company cautions that due to the compounding of daily returns, EUO’s’ returns over periods other than one day likely will differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples, such as EUO, and in funds with volatile benchmarks. ProShares recommends that investors should monitor their holdings in its funds as frequently as daily.

For investors looking for a way to profit from short-term swings in currency values, ProShares UltraShort Euro (EUO) could be worth including as an investment that is not dependent on the rise of the stock market to produce a profit.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.