It just doesn't seem possible that the dollar could go any lower, could it? Last week it's been setting record lows against the euro, a 26-year low against the British pound, and a 17-year low against the Australian dollar. I heard the other day that a primary expat quality-of-life indicator, the Thai baht, has risen to 45/dollar at some exchanges.
Yet China is still clamping down on the yuan, I bet that the U.S. Treasury is still running the presses nights & weekends, and the Fed is still trying to keep inflation alive. While Tweedy, Browne claims that currency hedging is a neutral strategy over 20-30 years, I'm having a hard time trying to find a reason that the dollar would start shooting back up.
International mutual funds soar when the dollar sucks-- as long as they're unhedged. Hedging is a drag on a fund's returns when the dollar is dropping and the cost of hedging is always a drag. So due to hedging (and other concerns), a year ago we dumped Tweedy, Browne Global Value (TBGVX) from our IRAs and replaced it with the (then very new) PowerShares International Dividend ETF (PID). TBGVX is still 9% of our ER portfolio (in a taxable account) but PID is 22%.
I tend to jump aboard a trend about a month before it falls flat, so the result of this switch was a pleasant surprise. Over the last year TBGVX has still managed to rise over 15% but PID has risen over 20%. That's probably due to a lower expense ratio (0.6% vice 1.38%) and no hedging. I don't think the chart even considers the effect of reinvesting dividends, and PID yields 2-3%.
We'll eventually get rid of the rest of the TBGVX shares and keep our international allocation at around 25%. But with Berkshire Hathaway and a DOW dividend ETF (DVY) in our ER portfolio, our actual international exposure is probably higher. And I suspect that international investments will continue to outperform domestic indexes-- especially as the dollar keeps dropping.
Yet China is still clamping down on the yuan, I bet that the U.S. Treasury is still running the presses nights & weekends, and the Fed is still trying to keep inflation alive. While Tweedy, Browne claims that currency hedging is a neutral strategy over 20-30 years, I'm having a hard time trying to find a reason that the dollar would start shooting back up.
International mutual funds soar when the dollar sucks-- as long as they're unhedged. Hedging is a drag on a fund's returns when the dollar is dropping and the cost of hedging is always a drag. So due to hedging (and other concerns), a year ago we dumped Tweedy, Browne Global Value (TBGVX) from our IRAs and replaced it with the (then very new) PowerShares International Dividend ETF (PID). TBGVX is still 9% of our ER portfolio (in a taxable account) but PID is 22%.
I tend to jump aboard a trend about a month before it falls flat, so the result of this switch was a pleasant surprise. Over the last year TBGVX has still managed to rise over 15% but PID has risen over 20%. That's probably due to a lower expense ratio (0.6% vice 1.38%) and no hedging. I don't think the chart even considers the effect of reinvesting dividends, and PID yields 2-3%.
We'll eventually get rid of the rest of the TBGVX shares and keep our international allocation at around 25%. But with Berkshire Hathaway and a DOW dividend ETF (DVY) in our ER portfolio, our actual international exposure is probably higher. And I suspect that international investments will continue to outperform domestic indexes-- especially as the dollar keeps dropping.