Foreign exchange markets are enormous and offer many opportunities to trade. They’ve grown tremendously and remain very lively. There’s even a brand new currency called the Wocu, a world currency introduced by WDX as an instrument to avoid exchange rate fluctuations when doing business across borders.

Currency trading is one of very few investments that diversifies a portfolio—especially now that bonds and commodities are bizarrely going up together with stocks. Nevertheless, most people don’t invest in currencies and there are few FX mutual funds. Amateurs that dabble in FX often lose big time. These are treacherous markets even for professional managers.

Axel Merk’s Merk Mutual Funds offer an easy way to get the benefit of returns that are not likely to tank when everything else does. The $370 million Merk Hard Currency Fund has a three-year track record averaging 8.12% a year, which compares favorably to stock funds. The latter mostly are still in the red for the three year period despite the big rally since March.

Merk is betting that the US dollar will go down further. His top holding in the Hard Currency Fund is SPDR Gold Shares, followed by Swiss, New Zealand and Canadian government bonds.

There is also the Merk Asian Currency Fund which is about flat for the year and Merk Absolute Return Currency Fund, introduced this month.

Kieran Osborne, co-portfolio manager of Merk Absolute Return, argues in a report that the US government and Federal Reserve are printing money to buy trillions of dollars worth of long-dated securities while most other central banks are more constrained. “Whereas the Fed and US government balance sheets are likely to be in shambles going forward, it is not hard to find examples of nations in much healthier situations,” he writes.

Norway, Australia and New Zealand are among his examples of countries whose currencies are likely to gain against the dollar. It’s an argument that makes sense, but FX markets are often subject to sharp fluctuations inconsistent with the fundamental economic situation. This is what makes FX trading so risky.

In the mid-2000s many people expected the Greenback to go down, but for years it was buoyed by capital inflows. I remember some currency hedge funds lost money on premature bets against the US dollar at that time. Still, it’s worth having a currency fund in your portfolio.

Merk Hard Currency would be my choice because of its consistent track record. Can’t tell how the other Merk funds will do because they’re new.

Chidem Kurdas maintains the blog MutualFundSmarts.com, an informative outlet for sophisticated mutual fund investors; and the blog Manhattan Capital (www.JenniferKerfuffle.com), a hilarious, libertarian news-spoof. Chidem is also a contributor to ThinkMarkets.