Translate Foreign Revenue Carefully

Results

At the negative end, the list contains many of the high-tech sectors such as:

• Semiconductor Equipment
• Computer Storage and Peripherals
• Semiconductors
• Systems Software
• Application Software
• Communications Equipment
• Biotech
• Computer Hardware

This clustering is fascinating, given the 11.3% annualized rate of return for the S&P Technology Select SPDR(XLK) over this period and the heavy export business done by these firms. This indicates that investors looking to benefit from a falling dollar would not benefit from that dynamic in this group.

At the positive end, the list is dominated by the usual suspects: Gold, Diversified Metals & Mining, Homebuilding and a large smattering of various energy groups. The presence of the Homebuilders is due simply to the fact that both homebuilding and the euro benefited from low U.S. interest rates. The presence of the various energy groups is due to coincident bull markets in both the euro and energy (this fundamental analysis stuff isn't as hard as I thought). Energy is a dollar business worldwide, and per the mention above should be more immune to currency translation effects than are other industries.

On a fundamental basis, the Metals and Mining and even Homebuilding correlations to the euro make sense. If you believe the dollar will remain in a bear market relative to the euro -- a debatable proposition -- these sectors will outperform the broad market. The same cannot be said for the Energy sectors.

We could repeat this exercise over longer periods and over a larger set of currencies than simply the euro; this was done for demonstration purposes only. The real point, and the answer to this reader's question, is that there does not seem to be an income statement effect at work, but rather a set of economic conditions that either benefit or hurt both a currency and an industry concurrently.

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