New Merk funds offers currencies for all

Date: Wednesday, September 9, 2009
Author: Svea Herbst-Bayliss, Reuters

Money manager Axel Merk has a proposition for average investors: play the currency markets like a hedge fund for a mere $2,500.

Normally the world's foreign exchange markets -- where dollars, euros and yen exchange hands at lightning speed and in enormous sums -- are off limits to people who are saving a few hundred dollars a week for retirement or college tuition.

But on Wednesday, Merk -- a computer scientist turned asset manager with a growing reputation for bringing currencies to Main Street investors -- will launch his third fund that will be stocked with the world's biggest and most liquid currencies.

The Merk Absolute Return Currency Fund will join the four-year-old Merk Hard Currency Fund and the one-year-old Merk Asian Currency Fund as part of the Merk Mutual Funds' lineup.

"This fund will allow the public to have access to the forex markets," Merk said in a telephone interview.

"The main goal is to offer true diversification with a mix of currencies that can go long or short," Merk said, describing the portfolio as something for investors who want to own more than stocks and bonds.

Investors will be able to access the fund through the Internet, brokerages such as Fidelity and Charles Schwab (SCHW.O), and through financial advisors.

The new fund will share characteristics of the two existing funds: it will never use leverage or borrowed money to make returns grow faster and it will make long-term allocations, not minute by minute calls, Merk said.

But unlike the other two, this fund can bet that a currency will move up or down, something quite unusual for Merk, who was born in Germany and spent most of his professional life making a one way call -- that the U.S. dollar will fall.

While that bet has paid off handsomely for Merk and his investors -- the dollar sank to its lowest level against the euro this year, having dropped 3.66 percent since January -- the new fund will give Merk more room to maneuver.

By being able to go long or short, the new Merk fund will also take on characteristics that have helped hedge fund managers outperform the stock and bond markets and pull in billions of dollars from pension funds and endowments.

"This will give him more flexibility to achieve his returns," said Ben Alpert, an analyst at research firm Morningstar. "Essentially this is a hedge fund strategy that is able to conform to mutual fund rules," he added.

Merk tried to gain some distance from the hedge fund industry where funds have long delivered eye-popping returns but were blamed for accelerated the global financial crisis with double-digit losses last year. "This sounds like a hedge fund but really it will not be one," he insisted.

Still, investors are not turned off by the "hedge fund" name and still want exactly the kind of returns these types of funds promise to deliver when stocks and bonds sag, analysts said.

So far, Merk has had success in attracting clients. His Hard Currency Fund invests $362 million, more than similar funds offered by rivals like Morgan Stanley, ProFunds and Rydex, Alpert said.

Merk, a father of four, has also achieved enough personal success in the industry that he is able to seed the new fund with $1 million of his own money. Within two years, he would like to see the fund manage at least $100 million.

"When you put in $1 million of your own money, you have a great incentive to grow this fund quickly," Merk said with a laugh.