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How to position your portfolio amid a strong US dollar: Experts weight in

The U.S dollar (DX-Y.NYB) has been on a tear this year, and foreign currencies sliding against the greenback is causing trouble for countries with debt and trade invoices denominated in dollars.

As part of Yahoo Finance's ongoing series, "What to do in a bear market," we checked in with the experts on what the strong U.S dollar means for asset prices and how investors should position their portfolios.

Why has the dollar strengthened so much against other currencies?

So what's pushing the dollar higher? “The dollar's recent strength versus the Euro and the currencies of other developed nations has come from the U.S. being early in the global rate raising wave,” Russell Evans, managing principal and chief investment officer, Avitas Wealth Management told Yahoo Finance.

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“Money flows for trade and wherever it can find the highest yield," Evans added. "The U.S. Fed was quick to raise rates which makes the dollar a good place to park currency for institutions."

A person counts U.S. dollars at a currency exchange store in Manila, Philippinens, October 21, 2022. REUTERS/Lisa Marie David
A person counts U.S. dollars at a currency exchange store in Manila, Philippinens, October 21, 2022. REUTERS/Lisa Marie David (Lisa Marie David / reuters)

How should investors in the U.S. position their portfolios given the strong US dollar?

“The strong U.S. dollar makes it more favorable to own U.S. assets,” Evans noted.

However, he added, there are headwinds against multinational corporations with a large amount of business overseas.

“The negative for a strong dollar is dollar-based assets are more expensive for foreign purchasers," Evans said.

One alternative is to look toward companies doing more business domestically.

“Small- and medium-sized businesses tend to be more immune from a stronger dollar just in terms of sales because they tend to be more domestic,” Quincy Krosby, chief equity strategist for LPL Financial, told Yahoo Finance.

“That said many of them are subcontractors for multi-nationals. So you have to do your homework,” she said.

What about investors abroad? Should they be in U.S. assets?

“If you live in a non-U.S. developed country and invest in that economy, the move against you has already occurred. The weakness of foreign currency via the U.S. dollar makes it more expensive for foreign investors to invest in the U.S. market, even given the lower asset prices,” said Evans of Avitas Wealth Management.

Should foreign investors be buying dollars?

Not now, said Evans. “Now is not the time, that opportunity has passed. The time for investors abroad to invest in U.S. dollars was about a year ago. I think if an investor is abroad, the move has already occurred," he said.

"As other countries increase rates to fight inflation, as the U.S. has done, that is going to make their currencies more attractive compared to the US currency,” added Evans.

When will the dollar ease?

"Once the market is sniffing out that the fed is close to finishing up or that the fed transitions to a less hawkish stance, the dollar should ease,” said Krosby of LPL Financial.

“During periods like this, you’ve got to be stock specific and country specific and that’s why we recommend active management ... or waiting out this period,” she added.

Ines is a markets reporter for Yahoo Finance. Follow her on Twitter @ines_ferre

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