Brazil Currency ETF Could Be the Real Deal

I'm a big believer in foreign investing. Most people think of foreign investing in terms of stocks and bonds. Their thinking also should include global currencies.

In the last couple of years, there have been many foreign currency exchange-traded products listed mostly by Rydex Investments and WisdomTree.

A modest exposure to these products could help if the dollar resumes its trend lower and, depending on the currency invested in, could pay a high rate of interest.

The WisdomTree Dreyfus Brazilian Real Fund (BZF Quote) offers a diversification benefit. And a news report from Reuters that Banco Bradesco (BBD Quote) inked an agreement with Mitsubishi UFJ Financial Group (MTU Quote) "to sell funds that invest in Brazilian assets to Japanese retail investors" could be a meaningful catalyst for future gains for the real.

As you know, Japan's stock market, bond market and economy have been in a quagmire since 1990, and this has forced Japanese investors to seek returns outside their home market. This has meant Japanese flocking to Australian and New Zealand debt -- so-called Uridashi bonds -- in search of higher yields. This is obviously a version of the currency carry trade. This flow of yen has been a powerful catalyst for the Aussie and Kiwi currencies, and the agreement between Banco Bradesco and Mitsubishi UFJ may be the first step to creating a massive flow to the real from the yen.

A currency with easy-to-understand visibility for ongoing demand makes sense to explore. Brazil's real offers several positive attributes that make it a compelling diversifier in addition to being a beneficiary of Japanese investment demand.