Axel Merk, president and CIO of Merk Investments talks with Funds Society about the benefits of investing in currencies and his preferences in the market.
With a low rate environment and increasing prices in equities fueled by the extra liquidity in the market, the search for performance is increasingly more complex, reason why Merk recommends investors capable of living “in a world with no safe havens” to diversify on the currency side. In the expert’s opinion, currency diversification offers opportunities to create diversified portfolios with low correlations which are relatively less complicated to operate than the equity market.
Speaking about specific currencies, Merk- who recently participated in the 66th annual CFA conference-, mentions that when looking to diversify, although many investors are too optimist on peso, they believe –because of its high correlation with the SP500- that there are better opportunities with other currencies such as the Swedish Krone, Canadian dollar, Sterling and surprisingly, the Euro, mentioning that even though “the entire world loves México and hates the Eurozone, we tend to buy euro”.
Amongst the reasons why they are bullish on the euro he mentions that there is a misconception that ties economic growth to a strong currency, and that having the European Central Bank returning many of the loans they had, could boost the euro. Merk also mentioned that there are many yield-hungry investors happy to acquire yields offered by peripheral European securities, which valuations have been damaged by the less than optimal macro environment some euro countries are currently experiencing.
Axel Merk, author of the book “Sustainable Wealth”, is an expert on macro trends, and international investing focused on currencies. He holds a B.A. in Economics (magna cum laude) and a M.Sc. in Computer Science from Brown University.