The decline in the U.S. dollar is over, according to Steve Smith, executive vice president and portfolio manager of Brandywine Asset Management LLC, Wilmington, Del.
In fact, Mr. Smith believes the euro and other European currencies are far more vulnerable than the dollar.
Mr. Smith's views should be listened to. His $7 billion global fixed-income composite returns have topped the performance charts for the one-, three-, five-, seven- and 10-year periods ended Dec. 31. His accounts were up 13.5% last year and have returned 13.2% compounded annually over the 10-year period.
About 50% of the returns have come from currency management, Mr. Smith said in April.
Because he believes the euro is vulnerable, "we have sold all our euro bonds and brought the money back to the U.S.," he said.
Mr. Smith said because the euro is overvalued, especially relative to the Asian currencies such as China's yuan, it will be hurt when the Chinese government allows the yuan to float. Although he could not say when that would happen, he expects it to occur before the Olympics in Beijing in 2008.
Mr. Smith has 5% of his clients' assets invested in Mexican bonds, yielding 11%; 5% in Brazil, yielding 17%; and 45% in Australian, New Zealand, U.K. and Polish bonds, where central bank tightening is ahead of the United States. He also has 35% in Pacific Rim securities, "not to make money in the bond market, but because we think the currencies will appreciate when China floats the yuan."
Mr. Smith said he avoids taking significant risk to earn higher yields. "More money has been lost stretching for yield than at the point of a gun," he said.