Funds denominated in USD

laffer

So it seems that a number of funds are denominated by USD. Am I right in my understanding that if I was to invest in such a fund (an I shares tracker) and the USD collapsed against the currency I ultimately wanted to convert my holding to (£ or AUD/NZD) then effectively I would have lost most of my investment because of the collapse of the USD. So in such a situation I need to hope my investment does well and the USD stays reasonably strong against other currencies.

Hmm.

If this is so how do others exchange their money out of these funds? With the US Government printing money like it is I am not too confident of the future of the USD and so am a little risk averse about it but I thought I should check my understanding of how USD funds work first.

Lokolo

Then go for homeland funds only. That way its in GBP.

tradetime

If you believe the USD will collapse, then you should not invest in dollar denominated funds, unless they track things that are dollar sensitve, for example commodities, if the dollar collapses then commodities which are in the main priced in US$ will rise to compensate. It is also somewhat misunderstood that if you print money, and debase your currency, and I export to you, then I must debase my currency or go out of business, so I doubt the much talked about US$ collapse will materialise in the way people think.

laffer

tradetime wrote: »

If you believe the USD will collapse, then you should not invest in dollar denominated funds, unless they track things that are dollar sensitve, for example commodities, if the dollar collapses then commodities which are in the main priced in US$ will rise to compensate. It is also somewhat misunderstood that if you print money, and debase your currency, and I export to you, then I must debase my currency or go out of business, so I doubt the much talked about US$ collapse will materialise in the way people think.

Yes but think about the USD in the context of the AUD. The AUD was, up until late last year, trading at almost parity with the USD and then the sudden collapse in the AUD. It has been edging up further and further in recent times. With interest rates being substantially higher in Oz, the recession being milder in Oz and the fact that the Oz Govt has no need to turn the presses on then surely the AUD will rise against the USD. The only way it would not would be if the Australian Government directly interevened in an attempt to keep the dollar low (which is a possibility because they have done it before to prop it up) and could do it again...but who knows hey?

I need to get some £ into AUD shortly and with the £ collapsing against everything and my fears over the USD I do wonder how to convert is successfully!

wheredoesallthetimego

Re AUD accounts
http://forums.moneysavingexpert.com/showthread.html?t=1534483

Especially the post about using Citibank for transfers.


I'm assuming that if a fund is denominated in USD and invests in stocks outside the US then the nav should increase as the USD decreases - i.e. the stock price will be in the market currency and be converted to USD for valuation.
If that's right then it's interesting that a lot of non-uk funds priced in sterling didn't show a large increase when sterling fell.

tradetime

laffer wrote: »

Yes but think about the USD in the context of the AUD. The AUD was, up until late last year, trading at almost parity with the USD and then the sudden collapse in the AUD. It has been edging up further and further in recent times. With interest rates being substantially higher in Oz, the recession being milder in Oz and the fact that the Oz Govt has no need to turn the presses on then surely the AUD will rise against the USD. The only way it would not would be if the Australian Government directly interevened in an attempt to keep the dollar low (which is a possibility because they have done it before to prop it up) and could do it again...but who knows hey?

I need to get some £ into AUD shortly and with the £ collapsing against everything and my fears over the USD I do wonder how to convert is successfully!

The AUS$ is a commodity currency, it's collapse was related to the global collapse inthe commodities markets, the AUS$ should without intervention hold up better than the US$ going forwards, but as I say, it rather depends on what you invest in, if you buy the S&P500 tracker SPY, and the US$ falls heavily against the AUS$ then you have a problem because the companies in that fund are not particularly sensitive to US$ rate. they will simply be worth less in AUS$. If however you buy a commodity such as oil, and lets say oil rises, then you are making money, now the US$ collapses, then oil will rise even more to compensate, part of the run up to $147 last year was due to speculative hedging against US$ weakness. It is about real value vs nominal value.

tradetime

wheredoesallthetimego wrote: »

I'm assuming that if a fund is denominated in USD and invests in stocks outside the US then the nav should increase as the USD decreases - i.e. the stock price will be in the market currency and be converted to USD for valuation.
If that's right then it's interesting that a lot of non-uk funds priced in sterling didn't show a large increase when sterling fell.

That makes sense in theory, though I am a little sceptical of how well it actually works in practise, part of the problem is that in many cases the stocks that they actually invest in are listed in the US and this confuses the issue somewhat, for example a fund in the US that contains Barclays Bank will contain BCS not BARC.L
thay will move in the same general direction, but not necessarily by the same amounts, and if you multiply that over a lot of stocks it can become even more pronounced.

laffer

Interesting. So to link this thread with my other thread that Oil fund might be worth some further research but I take your point about Oil spiking recently. The Oz Government has shown a desire to intervene to prop the currency up (when it was heading to .05 USD) but I have never seen them encourage a move to sell it off and reduce the price presumably because of the strength of the commodities markets and the general move away from mass manufacturing where currency sensitivities can be much greater. Whilst ever China and India consume Aussie Soil I guess the AUD will do well (but we shall see whether China is able to continue its path to glory).

Thanks for your valued comments tradetime. I hope my comments make some sense!

tradetime

You're welcome, and yes your comments make perfect sense, currency risk in investing can be a very big issue, and I cannot say otherwise, it is my belief however that currency sensitive things like commodities have real value, that is a combination of the cost of production from wherever it is they are produced, coupled with the old demand / supply. Their price as expressed in US$ is their nominal value, if the US$ loses value then the nominal value must rise to compensate, so even if the supply and demand of oil remain perfectly balanced, but the value of US$ fall then the amount of US$ to buy must rise, so if you are holding the commodity, the dollars you get will buy less in say Australia, but you will get more US$ to compensate for this. That's my thought anyway. But nothing is ever cast in stone.
Real things have real value, if paper currency is debased then it simply takes more of that currency to buy the real things, this is partly why there was a jump in commodity prices last week when the FED announced their money printing, the early money moving to hard assets.

malik999

laffer wrote: »

So it seems that a number of funds are denominated by USD. Am I right in my understanding that if I was to invest in such a fund (an I shares tracker) and the USD collapsed against the currency I ultimately wanted to convert my holding to (£ or AUD/NZD) then effectively I would have lost most of my investment because of the collapse of the USD. So in such a situation I need to hope my investment does well and the USD stays reasonably strong against other currencies.

Hmm.

If this is so how do others exchange their money out of these funds? With the US Government printing money like it is I am not too confident of the future of the USD and so am a little risk averse about it but I thought I should check my understanding of how USD funds work first.

I certainly don't believe in US$ collapse. Infact i see problem is with the GBP and the GBP weakening against the US$, not the other way around.