In the portfolio I run— the Prestige Glob-al Growth and In -com e Fund — all

our liquid assets are inU.S. dollars.

In fact, 37 per cen t ofour holdings are cash, allgreenbacks.

Th i s u p s e t s m a n ypeople. Such a big p ile of cash isa waste, they say. To un lock itstrue value, such cash m ust beput to work.

I’d argue otherwise. Holdingthis am ount of cash in the propercurrency — in this case, U.S. dol-lars — not only gives our portfolioa synthetic hedge, but acts as aninvestm ent in and of itself. It alsogives us an edge in asset allocation.

Moreover, the greenback hashistorically been safe, as shownby its strength during the m arketm eltdown of 2008.

Dollar takes the lead

Indeed, because the Am ericaneconom y is increasingly showingsigns of life, the U.S. dollar has re-cently been outperform ing otherm ajor currencies.

True, with cash in U.S. dollars,our portfolio would have no real-ized or unrealized capital gains.

But when com pared to fundsthat are denom inated in either

Yen or Euros, we can seean obvious m argin .

From the start of2014, the greenback hasrisen 8.8 per cent againstthe Euro, 3.2 per cen tagainst the British poundand 2.4 per cen t againstthe Yen . In fact, the dol-lar recen tly reached its

highest peak since 2008.Most of our fund’s invest-

m en ts are dollar-denom inated.True, we’ve m ade som e invest-m ents outside the U.S.

But we try to do so indirectlyby using an Am erican depositaryreceipt, or a dollar-denom inatedexchange-traded fund. This way,we can help relieve the im pact ofcurrency translation .

Som e exam ples of these hold-ings in our fund are Power SharesChinese Yuan Dim Sum BondETF (DSUM-NYSE, $24.82), Al-lianz SE (AZSEY-OTCQX, $17.12),iShares MSCI Hong Kong (EWH-NYSE, $22.02), WisdomTreeEmerging Markets Equity In-come ETF (DEM-NYSE, $46.80)and Royal Dutch Shell plc(RDS.A-NYSE, $71.37).

In the m eantim e, to capitalizeon the dollar’s uptrend, we’ve putm ore than 10 per cen t of ourfund’s value in to another ETF:PowerShares DB U.S. DollarBullish (UUP-NYSE, $23.28).

And although we’ve held thefund for less than a m onth, it hasgiven us a gain of nearly three percent, providing a m ore aggressiveway to enhance our portfolio interm s of the greenback.

In term s of asset allocation ,there are other upsides to keepinglots of U.S. cash in our portfolio,one being the cushion it providesin the event of a m arket pullback.

And this is what we’ve experi-enced during the recent sell-off inthe S&P 500 Index — a sell-offthat’s seen the index lose m orethan five per cent of its value.

But we m anaged to weatherthe storm , given that we outper-formed our benchmark, the MSCIWorld index, by a big m argin .

Moreover, not all our cash issitting idle, considering that weuse 10 per cen t of it as a depositfor shorting option contracts.

In other words, th is cash ,seem ingly sitting on the sidelines,helps create value for our fund bygenerating incom e from optionscontracts.

Facts prove our point

Our success isn ’t a case ofdum b luck, but can be provenfrom the facts on the ground. Asthe market began melting down in2008, investors retreated, sellingout in exchange for U.S. dollars.

And while the m eltdown greweven hotter, the greenback rosehigher and h igher un til it h it anall-tim e high in 2009.

Its strength is evident from theU.S. dollar index which com paresthe greenback against a weightedbasket of six currencies: the Euro,the Yen , the British pound, theloonie, the Swedish krona and theSwiss franc.

And the index shows that dur-ing th is tim e, the dollar rose byover 20 per cent to 89 from 72.

This reflects the belief that theAm erican econom y has alwaysbeen and will continue to be seenas a safety net for investors.

Not on ly is the U.S. both re-silien t and flexible, but it hasshown it can take on new eco-nomic challenges. Take the periodfrom the end of the Second WorldWar to the era of globalization.

Although these were years ofdrastic change, the U.S. managedto prevail. Sim ply put, the U.S.economy is fail-proof. In sum, ourstrategy of holding U.S. dollars,while focusing on dollar-denom i-nated equities, has paid dividends.It’s also allowed us to reap rewardsin terms of asset allocation.

Peter Pham , an entrepreneur, isalso an expert on capital m ar-kets. He’s based in Ho Chi MinhCity in Vietnam .

December 12, 2014 Vol. 46, No. 23

V O T E D T H E W O R L D ’ S B E S T I N V E S T M E N T A D V I S O R Y

Greenback’s growing strength shows continued confidence in Am erican econom y

Fund reaps dividends from U.S. dollar

Peter Pham

© Copyright 2014 by MPL Communications Inc., Reproduced by permission of Investor's Digest of Canada, 133 Richmond St. W., Toronto, ON M5H 3M8

Investor’s Digest of Canada can be found at www.adviceforinvestors.com