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QBE Insurance benefits from plunging Aussie dollar

Sometimes a picture can tell a thousand words and sometimes the picture cannot, so in general Fools should be careful about putting too much weight on technical indicators or charts. However the two charts below, I think, do show how investors are repositioning their portfolios in response to the falling Australian dollar.

Exhibit 1

QBE1

In the past three months, the Australian dollar has lost 11.2% of its buying power against the US dollar. Given all the moving parts to a global business such as QBE Insurance (ASX: QBE) there is rarely a simple one-for-one result from currency movements. However, even though there are a number of forces at play, QBE is positively skewed to the declining Australian dollar. Investors have realised this and it is one explanation for the rise in value of QBE’s shares, as we see in the second chart.

Exhibit 2

QBE2

Source: Google Finance

As we can see, over the three-month time period in which the Australian dollar has fallen 11.2% and the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has fallen 6.7%, QBE is up 16%. In comparison, other large financial firms which are largely domestically focussed with little offshore revenue such as Commonwealth Bank (ASX: CBA) and Westpac (ASX: WBC) have followed the index down, falling 4% and 10.7% respectively.

Foolish takeaway

Many of the world’s greatest investors overlay their in-depth bottom-up research of companies with themes that they believe can provide a tailwind. These themes can be anything from the increased use of the internet, to China’s growth to a declining Australian dollar. The key is to be always on the look out, so that you can identify the theme early and react accordingly.

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Motley Fool contributor Tim McArthur owns shares in QBE Insurance.

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