Why Currencies Make Sense!

"It is interesting to note that while it is theoretically possible for stocks, bonds and commodities to all fall in price at the same time, it is not theoretically possible for all currencies to fall at the same time, because the value of currencies are expressed in terms of other currencies. If one goes down, another must go up."
-Richard Shaw

If you had the opportunity to visit our website www.corestates.us, you may have seen a short video explaining the concept of negative correlation. Simply stated, several asset classes have opposite reactions to the same set of market conditions. Much like an eight cylinder engine that works most efficiently when one piston provides specific power in correlation to the other pistons. When one piston is up the others are in various stages of the engine cycle.

At CoreStates we allocate our eight cylinders across various asset classes that have tendencies to move just like the pistons. The four traditional asset classes that we use are comprised of stocks, bonds, cash and real estate. The nontraditional asset classes that make up the eight cylinder engine include energy, precious metals, commodities and currencies. The reasons that currencies make a lot of sense in a diversified portfolio are as follows:

1. The currency market is the largest in the world
The massive volume of currency transactions,
nearly $2 trillion daily, allows extremely low transaction costs and provides a level of liquidity unmatched by any other asset class.

2. It is a market that never closes
Even the most liquid market is totally illiquid . . . when closed. And remember, the stock and bond markets closed for several days following the 9/11 terrorist attacks. The currency market did not. Investors in this market were able to transact while others could only wonder what their investments might be worth.

3. Most stock and bond investors are already exposed to currencies
Any company or government that does business overseas brings currency risk to its lenders and investors. Changes in the value of local currencies relative to the home currency (the dollar in our case) can turn a profitable business or investment transaction into a loss.

4. Major market participants aren't all in it for profit
Whether it is a Central Bank attempting to influence the value of its currency or a corporation hedging its international business transactions, their goal is stability, not maximum profits. In few other markets are major participants not seeking and fostering large price moves in either direction.

5. Returns from currency trading rarely coincide with other investment returns
Adding currency strategies to a diversified investment portfolio stabilizes overall portfolio values and helps assure that favorable returns are always available from at least one asset class.

6. The currency market is crash resilient
Each individual currency trades relative to another currency (for instance, the number of yen per dollar, or dollars per euro). So, every gain in one currency is matched by a loss in another. Individual trading strategies, if applied properly, will see varying degrees of success or failure, but the overall currency market will remain resilient because of these offsetting currency value changes.

7. Currencies are no more exotic than languages
Doing business in a foreign country usually requires the translation from one language to another, and the conversion from one currency to another. Both are simple, straightforward and necessary aspects of our global marketplace.

These unique aspects of the currency market make professionally managed currency-trading portfolios a valuable and readily accessible investment alternative for institutional and individual investors alike. CoreStates Capital Advisors has extensive experience with these strategies and makes available to its clients some of the nation's best currency managers - just one more way in which CoreStates seeks to fulfill its commitment to protect your lifestyle and preserve your legacy.

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