5 ETFs for a Risky Dollar

Many investors take their cue from the direction of the U.S. dollar. When the world's reserve currency has gained in value, global stock assets have often dropped. When the greenback has lost value relative to a basket of world currencies, world equities have frequently soared.

For those that were raised on the notion that a strong currency means a strong economy, the dollar's strong negative relationship with stock market performance is baffling. And yet the significant negative correlation has been evident throughout the past decade.

In understanding the U.S. dollar at the current moment, one can draw a parallel to the

Federal Reserve

's approach to interest rates. The Fed is always trying to orchestrate the perfect economic balance, keeping rates low enough to stimulate growth in recessionary times or pushing rates higher to contain growth in hyper-inflationary environments.

Similarly, the Fed's quantitative easing program seeks to weaken the U.S. dollar so that U.S. manufacturers fare better on the world stage.

The problem with manipulating interest rates, or a currency, is the risk of overshooting. That can occur when the Fed raises rates too far and too fast, choking the U.S. economy or when the Fed lowers rates too much for too long, breeding hype-inflation. A weak U.S. dollar risks collapse. And if that sounds too drastic, one can say that it risks a lack of investment in the U.S. by other countries that lose faith in the U.S. altogether.

Bringing this back to investing implications, it may be fine to hold a number of assets that do well when the dollar gets crushed. And, in fact, most Emerging Market Stock ETFs benefit immensely from this precise dynamic.

However, nobody should put all of their eggs in a single basket; that is, investing entirely in assets that climb when the U.S. dollar declines means you are lacking in diversification. True diversification means that you hold a variety of assets that have a limited relationship -- neither positive or negative -- to the dollar's movement.

Anyone who has searched the stock, commodity or foreign bond world lately may be having an enormously difficult time finding

non-correlating and low-correlating assets

. In truth, it's been a year of "dollar up, markets down" or "dollar down, markets up."

Nevertheless, I did find 5 stock ETFs that have bucked the general correlation coefficient trend. If you're interested in diversifying your portfolio away from the risk of U.S. dollar changes, consider augmenting your pie with one or more low-correlating stock ETFs below:

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.