Bloomberg News

Merk Offers Equity Mutual Fund Enhanced With Currency Positions

September 12, 2011

Sept. 12 (Bloomberg) -- Merk Investments LLC, which manages three foreign-exchange mutual funds with about $860 million in assets, said it will offer an equity fund that seeks to use currency positions to maximize returns.

The Merk Currency Enhanced U.S. Equity Fund will use exchange-traded funds, such as the SPDR S&P 500 ETF Trust, to track the Standard & Poor’s 500 Index. Through a so-called currency overlay, the fund will enter long or short foreign- exchange positions to increase profits and protect against market risk, according to Axel Merk, president and chief investment officer of the Palo Alto, California-based firm.

“The reason we put this together is because investors have been coming to us, both large and small, that there is a need for them to manage their currency risk more actively,” Merk said in a telephone interview.

The S&P 500 Index fell 1.7 percent last week to 1154.23. It has dropped 16 percent since reaching a three-year high of 1370.58 on May 2. IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of its six biggest trading partners, has fallen 2.4 percent this year.

A sovereign debt crisis in Europe, budget fights in the U.S. and a stagnating economy around the world are increasing investor concern. JPMorgan Chase & Co.’s Group of Seven Volatility Index, which reflects investor expectations of currency swings in the future, jumped to 14.7 percent on Aug. 11, the highest level since June 2010.

Merk Sells Euros

“We are explicitly adding the foreign currency exposure to the S&P 500, which in our view gives investors a better risk return profile, gives them international exposure without actually having to go overseas,” Merk said.

Merk said last week the model he uses to help make currency allocations within his funds is 100 percent negative on the dollar. The self-acknowledged “euro bull” sold $90 million of euros from his Hard Currency Fund and re-allocated it into Australian dollars as the European Central Bank becomes more likely to lower borrowing rates.

The Currency Enhanced U.S. Equity Fund will be available to individual and institutional investors and will join the company’s Hard Currency Fund, Asian Currency Fund and Absolute Return Currency Fund.

--Editors: Dave Liedtka, Greg Storey

To contact the reporter for this story: Catarina Saraiva in New York at

To contact the editor responsible for this story: Dave Liedtka at

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