The Alternative Asset That Just Hit Center Stage
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- Published on Monday, 09 January 2012 08:00
- Written by Sara Nunnally, Editor, Inside Investing Daily
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Investing in currency shouldn't scare you. It should get you drooling! Thanks to ETFs, making a profitable trade is easier than ever.
Friday, I talked to you about something a little unconventional: hay. You see, hay prices have climbed 62% over the past year, and it's our third most lucrative crop produced here in the United States.
But there's no pure play to profiting from hay, unless you're growing your own.
Unconventional investments can take you off the beaten path and into territories you're not used to, but many times, they're worth it.
Months ago we told you about the boom in farmland prices, especially in the Midwest. And we've told you about junior mining companies in Australia that are worth a look. And we've told you about currencies.
Currencies are the biggest market in the world, with trillions of dollars' worth traded every single day.
But many traditional buy-and-hold investors, perhaps like you, aren't playing in the currency market.
I don't blame you... Currencies are a hard alternative asset to understand. You have to juggle two moving pieces in a single investment. Every currency play is two-sided. That means the currency is only valued in comparison to something else.
And until the last couple of years these currency investments were only available in the foreign exchange market.
But things have gotten much simpler, and now, even traditional investors are starting to jump into currencies using exchange-traded funds. These ETFs offer investors access to foreign currencies in a simple, tradable platform. They are traded just like stocks!
That means currencies are the alternative asset that just hit center stage.
Nowadays, the Average Joe sitting next to you in the bar knows that Europe is on the verge of collapse. Or that emerging markets are growing.
Currency ETFs give investors a new way to act on that information... And they can be really lucrative.
Let me give you an example with one of the most popular currency ETFs, the CurrencyShares Euro Trust (FXE:NYSE). I think the FXE is going to become a household name when all is said and done.
Back in mid-November, I told my Macro Trader readers to pick up some put options on the CurrencyShares Euro Trust. Essentially, we were betting that the debt crisis in Europe was going to deepen and the euro itself was going to lose value.
(This ETF values the euro -- indeed, as most currency ETFs do here in the U.S. -- against the U.S. dollar.)
I said, "Pick up the FXE March 2012 138 put options at $6.80 or better. As the euro keeps falling, we'll pick up some gains... A drop to $130 could make these puts worth $9.60, a gain of 40%."
By mid-December, the FXE had fallen to $129.80, and these puts were worth $8.95 -- a gain of 35% from our entry price of $6.65.
But the FXE had much farther to fall, and since we'd chosen the March puts, we had plenty of time to see where this trend was going. I told Macro Traders to take gains on half of their position and let the rest ride to capture even higher gains.
Last Thursday afternoon, I sent out a Trigger Alert telling readers to take gains on the rest of their position. Friday morning, the FXE opened at $127.01, and these puts traded for $11.25, a gain of 69%!
Here's my point...
This investment category shouldn't scare you. It should get you drooling! The smartest investors have made billions from this market. Remember George Soros' billion-dollar trade? That was in the currency market, betting against the British pound.
The next one I'm interested in is the Japanese yen. There are some interesting things going on between Japan and China that might result in a stronger currency.
I'll be telling my Macro Trader readers more about that next Wednesday.
But here's my second point.
Alternative investments are -- by their very nature -- unconventional. And this is a good thing. Consider this quote from Bloomberg:
Commodities and agricultural real-estate may be attractive ways to benefit from growth and rising standards of living in emerging markets, said Michael Tiedemann, chief investment officer of New York-based Tiedemann Wealth Management, which manages about $6.5 billion.
Tiedemann is putting money behind those words. His company could increase holdings in these areas by 4% this year.
His clients have -- on average -- $65 million under his management. Investors with this kind of wealth don't invest blindly or fickly. They're in these unconventional assets to make money -- pure and simple.
So the next time an unconventional opportunity comes your way, give it a second look... It could be the next big thing.
Editor's Note: Most people have never considered this lucrative asset class... but since 2000, the "Sigma Market" has quietly generated consistent, live-changing returns. Here's how to get your share of these exceptional gains.
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