Capitalizing on a Long-Term Weak US Dollar: The Case for a BlackRock-Backed Trade

The U.S. dollar, a cornerstone of global finance for decades, is now navigating a structural shift. As the dollar enters what BlackRock terms a “multi-decade devaluation cycle,” investors face a pivotal decision: cling to overconcentrated U.S.-centric portfolios or recalibrate for a world where non-dollar assets could outperform. This article examines the case for a BlackRock-backed trade—leveraging dollar weakness through strategic allocations to unhedged international equities and alternative assets—to position portfolios for resilience and growth.

Historical Precedent: Dollar Cycles and Their Implications

The U.S. dollar’s trajectory has long been cyclical, with periods of strength and weakness shaping global capital flows. According to a report by the Center for Economic Policy Research, the dollar’s bear market in the 1970s—driven by the collapse of the Bretton Woods system and soaring inflation—saw international equities and commodities outperform U.S. assets by margins exceeding 20% annually [1]. Similarly, the 2000–2008 period, marked by the dot-com crash and the rise of emerging markets, saw the MSCI World ex-US Index deliver 12.3% annualized returns, compared to the S&P 500’s 8.7% [1].

Today, the dollar appears to be in another structural downturn. Data from Morgan Stanley indicates that the dollar has depreciated by 11% in the first half of 2025 alone, marking the largest drop in over 50 years [2]. BlackRock’s systematic macro team, which holds significant short positions on the dollar, projects further declines, citing U.S. interest rate convergence with global peers and policy uncertainties as key drivers [3].

BlackRock’s Strategic Playbook: Diversification in a Weak-Dollar Regime

BlackRock’s 2025 investment outlook underscores a dual strategy: increasing exposure to unhedged international equities and diversifying into alternative assets to mitigate risks in a higher-volatility environment.

1. Unhedged International Equities as a Core Position
   A weaker dollar acts as a tailwind for unhedged international stocks, as U.S. investors benefit from both equity gains and local currency appreciation. BlackRock highlights that international equities have historically exhibited lower volatility and lower correlation to the S&P 500 than U.S. small-cap stocks, making them a superior diversifier [3]. For instance, the iShares Core MSCI Total International Stock ETF (IXUS), which tracks over 4,000 global stocks, has outperformed the S&P 500 by 8.2% year-to-date in 2025 [4].

The firm also notes that advisors remain overly concentrated in U.S. equities, with the average portfolio allocating 77.5% to domestic stocks [3]. This overexposure leaves portfolios vulnerable to structural shifts, such as a U.S. economic slowdown or trade policy disruptions. By contrast, international equities offer access to markets with distinct growth drivers—such as China’s tech sector or Europe’s green energy transition—reducing reliance on a single economy.

1. Alternative Assets for Resilience
   BlackRock advocates for layering in liquid alternatives, gold, and inflation-linked bonds to further diversify portfolios. Alternatives, including private credit and infrastructure, have demonstrated low correlation to traditional assets, while gold has historically served as a hedge during dollar weakness [5]. The firm’s capital market assumptions also favor gold, projecting a 15% annualized return over the next five years amid rising geopolitical risks [6].

Risks and Counterarguments

Critics may argue that dollar weakness could trigger capital flight from U.S. assets, destabilizing markets. However, BlackRock’s analysis suggests that a weaker dollar enhances the appeal of non-dollar assets, creating a self-reinforcing cycle. For example, during the 2020 pandemic, the dollar initially surged as investors fled risk, but later depreciated as global economies reopened and fiscal stimulus boosted international markets [1]. This pattern underscores the dollar’s cyclical nature and the potential for long-term gains in diversified portfolios.

Implementation: From Theory to Execution

For investors seeking to capitalize on this trade, BlackRock recommends a phased approach:
- Step 1: Allocate 20–30% of equity portfolios to unhedged international equities via ETFs like IXUS or the iShares Core MSCI International Developed Markets ETF (IDEV) [4].
- Step 2: Introduce 10–15% exposure to alternatives, such as the PIMCO Enhanced Short Maturity Active Strategy Fund (MUB) for short-dated bonds or the SPDR Gold Shares ETF (GLD) for gold.
- Step 3: Rebalance portfolios annually to maintain target allocations, adjusting for macroeconomic signals (e.g., U.S. interest rate trends, trade policy developments).

Conclusion

The U.S. dollar’s long-term devaluation presents both challenges and opportunities. By adopting BlackRock’s strategic framework—prioritizing international equities and alternative assets—investors can hedge against dollar volatility while capturing growth in a more globally diversified portfolio. As history shows, those who adapt to shifting dollar cycles often emerge with superior risk-adjusted returns. In 2025, the question is no longer whether the dollar will weaken, but whether investors are prepared to act.

Source:
[1] The History of US Dollar Cycles [https://www.crescat.net/the-history-of-the-us-dollar-cycles/]
[2] Devaluation of the U.S. Dollar 2025 [https://www.morganstanley.com/insights/articles/us-dollar-declines]
[3] Dollar weakness boosts international appeal | BlackRock [https://www.blackrock.com/us/financial-professionals/insights/investing-international-equities]
[4] How to Invest to Benefit From Weaker US Dollar: BlackRock [https://www.businessinsider.com/how-to-invest-to-benefit-from-weaker-us-dollar-blackrock-2025-9]
[5] 2025 Fall Investment Directions: Rethinking diversification [https://www.blackrock.com/us/financial-professionals/insights/investment-directions-fall-2025]
[6] Capital market assumptions - Institutional - BlackRock [https://www.blackrock.com/ca/institutional/en/insights/charts/capital-market-assumptions]