The "Hard" in Merk's Currency Fund is a Misnomer

By Chip Hanlon | November 04, 2008 | 3:14 PM | 3 Comments

As with a lot of investments previously considered "safe" by investors this year, the Merk Hard Currency Fund (NSDQ: MERKX) has had a rough go of it of late. This fund, which is merely meant to represent a basket of foreign currencies other than the U.S. dollar, has reminded folks this year how aggressive the movements in foreign currencies can be (the fund is down 21% from its February's highs).

What's more, I still find folks who believe the Swiss Franc, for example, is backed by gold when in fact that tie was severed nearly a decade ago due to the adoption of a new Swiss Constitution which ended such backing. I suspect naming a fund in this way adds to the confusion.

As of its most recent filing, the Merk Fund did hold nearly 8% of its assets in the SPDR Gold Trust ETF (NYSE: GLD), but the remainder of the fund is in short-term, cash-like securities in foreign currencies, none of which is "hard," i.e. backed by gold.

Now, the fund's manager seems like a likeable enough fellow and I'm sure there's no ill intent because referring to foreign currencies as "hard currencies" is just standard lingo for U.S. dollar perma-bears, but I thought this reminder was in order: having some foreign currency exposure makes sense, but it makes little sense to constantly rail against the U.S. dollar as a fiat currency while simultaneously falling in undying love with all other fiat currencies.

I suspect recent holders of the Aussie dollar and Euro can relate.

Diversification The fund seems diversified enough for me. In hindsight, maybe a little heavy on the euro, but also holds 9 other currencies and gold. http://www.merkfund.com/fund/mhcf/ I'll take it. This phony dollar strength can't last forever. Submitted by Anonymous (not verified) on Wed, 2008/11/05 - 10:34pm » reply |

Perfectly written. I myself Perfectly written. I myself am a big proponent of holding a basket of currencies other than the US dollar. But to think that they alone can protect you from inflation is false. You need to have a diversity of currencies and commodities to be comfortably hedged against inflation. If all you hold are Euros, Swiss Francs and Aussie dollars, you may find you are subject to similar dilution problems that plague all fiat currencies. Submitted by Michael Pento on Tue, 2008/11/04 - 4:42pm » reply |