This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Three ETF Investments for Persistent Euro Weakness

NEW YORK (ETF Expert) -- One of the key themes that I presented at the start of 2014 was the notion that capital would begin shifting abroad. Attractive valuations compared to U.S. equities, ongoing stimulative measures in Europe as well as "carry trade" funding of higher-yielding assets contributed to several high conviction purchases.

Chief among them? iShares MSCI New Zealand (ENZL). While smaller nations often get overlooked when it comes to investor asset allocation, I argued that New Zealand presented a unique opportunity to participate in one of the fastest growing economies in the developed world. In addition, iShares MSCI New Zealand did not depend largely on global demand of basic materials the way that iShares MSCI Australia (EWA) did. In fact, ENZL still represents respectable diversification across a wide range of economic segments, including health care, consumer goods and industrials.

Fortunately, the thesis extended beyond impressive economic fundamentals and desirable diversification. Currency traders worldwide sell low-yielding currencies to raise capital for acquisitions of higher-yielding currencies and higher-appreciating assets. At the beginning of the year, I anticipated that Abenomics in Japan would further erode the yen such that institutional traders would sell (or short) Japan's currency to acquire the New Zealand dollar and/or buy New Zealand equities.

In truth, that may or may not have happened. While the yen dropped precipitously in 2013, it has actually snapped back a bit in 2014. The Japanese yen still remains low enough for borrowers to keep acquiring higher-yielding currencies and/or funds like ENZL. However, if the yen manages to move significantly higher and the Bank of Japan cannot "walk it back," institutional traders may be forced to dump New Zealand stocks in a flash to avoid paying bank loans on an appreciating yen.

That said, the fortunes of iShares MSCI New Zealand are not tied solely to the fate of Japan's currency. As it turns out, New Zealand recently hiked rates for the third consecutive time in 2014 on bullish expectations for its economy. Its official cash rate is now 3.25%. In contrast, the European Central Bank recently slashed its overnight lending rate and decided to charge other banks money (i.e. negative deposit rate) for storing cash in ECB vaults. Consequently, the euro hit a 13-month low against the "kiwi" (New Zealand dollar).

What does this mean? It implies that institutions will now borrow the euro to fund purchases of the kiwi for that 3.25% yield. Even better, investors may borrow the euro to purchase New Zealand equities. For ETF enthusiasts, funds like ENZL offer the added attraction of a 3.5% annual dividend. Many of my clients continue to own this ETF, benefiting from year-to-date gains of 15%.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,979.13 +59.54 0.35%
S&P 500 1,986.51 +4.91 0.25%
NASDAQ 4,526.4820 -1.0320 -0.02%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs