Be Careful Of The Weak Dollar Play (CRBQ, GDX, EEM)

I would be very careful about overly 'diversifying' into foreign markets, commodities, and commodity linked equities. These moves have been traditionally made to reduce volatility in a portfolio. However recently this has had the opposite affect.

Gold, commodity linked equities, and foreign markets have turned into essentially very high beta plays on the US stock market. And I’m talking about a beta of close to 2 or more in some cases.

Examples of this include SPDR Gold Shares (NYSE: GLD), Jeffries Commodity Equity ETF (NYSE: CRBQ), and Ishares Emerging Markets (NYSE: EEM). Over the past year or so all of these have become highly correlated with the US market, but with a much higher beta.

Essentially in a downturn, these securities would cause loses to be exaggerated. If an investor is looking to really reduce risk and correlation one should look to investment grade bonds, TIPS, market neutral funds, MLPs, blue chips, and other high yielding equities.

Of course if you firmly believe the US Dollar is forever doomed, then it still does make sense to invest weak dollar securities.