HOW TO INVEST FOR A WEAKER DOLLAR
Kiplinger's Personal Finance|December 2020
The greenback is fading—but that doesn’t mean your portfolio has to.
NELLIE S. HUANG

We rarely worry about whether the dollar is strong or weak relative to other foreign currencies unless we have plans to travel abroad and need euros, yen, or pesos (although we’re not doing much of that lately). Even so, moves in the dollar can affect your port­ folio in surprising ways. After a decade of nearly uninterrupted gains, the dollar sank precipitously all summer against a basket of foreign currencies. The greenback stabilized in September, however. Overall, since the start of the year, the dollar is lower by only 3%.But many strategists expect the U.S. currency to fall into a more persistent decline over the medium­to­long term, thanks in part to low-interest rates that the Federal Reserve has signaled will stay low for at least three years. “Mounting budget deficits, an expanded Federal Reserve balance sheet and an increased money supply” are weighing on the dollar, too, says Chao Ma, a global strategist at Wells Fargo Investment Institute. “We expect the U.S. dollar to stay in a structural bear market.” A weakening dollar can be good for certain investments. The U.S. companies that generate a significant chunk of revenues abroad will get a boost from the weaker dollar as money made overseas is converted into greenbacks. When the buck is weaker relative to the euro, for example, the profits that sporting goods giant Nike make in Europe will translate into more dollars when the firm repatriate those earnings. U.S. firms that export products overseas gain from a weaker dollar, too, because their goods become relatively less expensive for customers overseas.

Other kinds of investments can profit as well. U.S. investors in foreign stock funds benefit because when a foreign stock rises in price or pays a dividend in its local currency, that investment gain gets translated into dollars. Consider the performance of the MSCI EAFE index during the recent dollar decline. Over the nearly three-month period this summer when the dollar was weakening most, the index, which tracks stocks in foreign developed countries, gained 5.8% priced in local currencies. Converted into U.S. dollars, the index gained 10.9%.

And then there are commodities, whose prices tend to move inversely to the dollar. Because many are priced in dollars, a weak greenback typically means higher relative commodity prices. A lower dollar also fuels demand overseas, says Katie Nixon, chief investment officer at Northern Trust Asset Management. “Foreign buyers purchase U.S. commodities such as corn, soybeans, wheat, and oil with dollars. When the value of the dollar drops, they have more buying power.”

On the following pages, we home in on investments we think will benefit best from a lower dollar. Bear in mind that these are not meant to be wholesale changes you make to your portfolio. Rather, they are small, tactical bets to consider given the outlook for a weaker buck. Returns and data are through October 9.

U.S. MULTINATIONALS

U.S. companies that have substantial global operations will get a boost from the currency exchange when the dollar is weaker. Sales from foreign countries made up 43% of revenues for companies in the S&P 500 index in 2018, according to the latest data available from S&P Global. The following firms earn a high percentage of their revenues abroad, and they boast strong balance sheets and solid growth prospects, too.

ABBOTT LABORATORIES (SYMBOLABT, $110). Abbott pulls in 64% of sales from overseas. For years now, this maker of medical devices, generic drugs and nutritional drinks has focused on building a presence in emerging markets, where sales are growing fast.

The company’s acquisitions of Alere and St. Jude Medical in 2017 were key to beefing up its global business. Alere gave Abbott a top spot in point-of-care diagnostic tests (the ones administered in your doctor’s office, such as the test for the flu). And with St. Jude Medical, Abbott now dominates the worldwide cardiovascular device market. The purchases helped to drive the company’s overall growth in revenues in recent years, according to Abbott, particularly in emerging markets, which represent 40% of total sales.

Of course, the firm has other pluses. Its continuous glucose monitoring system, Freestyle Libre, is a top choice among diabetes patients—instead of finger sticks, a sensor worn on the body tracks glucose levels constantly. Sales of Freestyle Libre increased by 40% in 2019 from the year before; more than 2 million patients worldwide use the device.

Based on analysts’ earnings expectations over the next four quarters, the stock currently trades at a price-earnings multiple of 27—just a little higher than the average multiple of 28 in relation to expected earnings at which the stock has traded over the past three years. The firm’s rapid-result COVID diagnostic test has propelled the shares higher this year. Even so, Credit Suisse analysts Matt Miksic and Vik Chopra expect significant share-price gains over the next 12 months.

ACTIVISION BLIZZARD (ATVI, $78). Just over half of annual revenues at Activision Blizzard come from abroad. In the future, overseas sales may make up even more of total revenues. For starters, the growing shift of gaming to mobile devices (from consoles and computers) has expanded the potential market across the globe, and Activision hopes to pounce on it.

In fact, it already has. In late 2019, Activision launched a mobile-device version of Call of Duty, its hugely successful war game. Since then, the game has tripled its reach, according to the company, topping the charts for installments in more than 150 countries.

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM KIPLINGER'S PERSONAL FINANCEView All

Tame the Cost of Pet Care

If you’ve added a dog or cat to your family, consider pet insurance to manage routine and unexpected veterinary bills.

8 mins read
Kiplinger's Personal Finance
February 2021

Invest in These Great Places to Work

These companies do well by their workers, which can translate into gains for investors.

9 mins read
Kiplinger's Personal Finance
February 2021

SAVE MONEY WITH AN ELECTRIC CAR

Although some are still a pricey luxury, we found EVs that are fun, affordable and eligible for tax incentives.

10 mins read
Kiplinger's Personal Finance
February 2021

The Right Robo Adviser for You

We sort through the evolving world of automated investment services, including some that offer a human touch.

10+ mins read
Kiplinger's Personal Finance
February 2021

Give Your Child Some Credit

Naming your child as an authorized user on your credit card can be a great way to set them up with a healthy credit report.

2 mins read
Kiplinger's Personal Finance
February 2021

Get Your Retirement Back on Course

Even the most diligent savers can encounter obstacles on the road to retirement, but the past few months have delivered unprecedented hazards. We’ll help you come up with a recovery plan.

10+ mins read
Kiplinger's Personal Finance
February 2021

FEDERAL DEBT : A HEAVY LOAD

The debt continues to grow, but record-low interest rates could ease the long-term damage.

3 mins read
Kiplinger's Personal Finance
February 2021

Best 401(k) Funds From Fidelity

We rate the most popular actively managed offerings for retirement accounts.

6 mins read
Kiplinger's Personal Finance
February 2021

WHERE TO INVEST IN 2021

With the election in the rearview mirror, investors can turn their full attention to the economic recovery and progress on the pandemic.

10+ mins read
Kiplinger's Personal Finance
January 2021

Anatomy of a Stock Trade

Stock trades are free these days at most online brokers. But where and how your trade is filled can impact your purchase price. And “it all happens in a flash,” says Jeff Chiappetta, vice president of trade and education at Schwab. It takes just 0.08 seconds, on average, at Schwab, from the time you submit your trade to validation of execution. Here’s a step-by-step look at what happens when you place a market-order stock trade.

3 mins read
Kiplinger's Personal Finance
February 2021