ETFs and currency risk

dboswell

I noticed that some ETFs have USD as the base currency and some GBP. Ironically, ishares use alot of USDs and Soc Gen GBP.

Does this represent an exchange rate risk if I was for example, to buy through H-L here in the UK? I was thinking of the world tracker - or does that in itself represent a currency risk?

Is there any difference between lxyor or ishares in quality and stability or is it all homogenous?

ozzage

The real currency risk lies with the underlying shares. If the ETF is denominated in USD but it's a FTSE 100 tracker, then you have no currency risk investing from here.

Likewise - just because it's in GBP doesn't mean that you're avoiding currency risk, if for example, it's tracking an emerging markets index.

mr_fishbulb

iShares have bases of USD, GBP or EUR. Why would they have different currencies if it didn't really make a difference?

sabretoothtigger

ozzage wrote: »

The real currency risk lies with the underlying shares. If the ETF is denominated in USD but it's a FTSE 100 tracker, then you have no currency risk investing from here.

Likewise - just because it's in GBP doesn't mean that you're avoiding currency risk, if for example, it's tracking an emerging markets index.

Yep thats my impression also. I have GBP unit trust but all the shares are foreign so the unit trust has a currency risk warning attached to it.
The shares are going to hand out dividends in their local currency, so thats certainly a risk.

Most funds have something in cash so thats what they'll be holding I guess. You'd have 2% USD or GBP exposure.


Also when you cash up the ishares is it immediate? you might be exposed while the sale is processed. If dollars drop 10% on the day you sell maybe you could be unlucky, ask barclays about it
You wouldnt want a Zimbabwe ishares fund though barclays does operate there and they do have a stock market I think, the charts must look awesome :laugh:

ozzage

mr_fishbulb wrote: »

iShares have bases of USD, GBP or EUR. Why would they have different currencies if it didn't really make a difference?

That's a good question. Often the same ETF is available in more than one currency (ETF Securities does that a lot). Why?

JDinho

ozzage wrote: »

That's a good question. Often the same ETF is available in more than one currency (ETF Securities does that a lot). Why?

Ease of settlement for one, some investors do not have the facility to purchase/hold foreign denominated investments.

markd_2

The currency issue plays a significant part. Monitor the tickers IUSA against IUSD on a daily basis and you will see the impact especially when you compare it against the S&P 500 that it monitors in this example.

dboswell

it would be interested to know over the last 4 years the gain of say iShares MSCI Brazil of the investments vs the currency change. It could materially affect a few investments.

I want to take out a far east etf so would if be better for me to look for a GBP based one, rather than a USD one (assuming its GBP into USD into local currency and vice versa), so is it something not to be concerned about?

tradetime

dboswell wrote: »

it would be interested to know over the last 4 years the gain of say iShares MSCI Brazil of the investments vs the currency change. It could materially affect a few investments.

Really not sure how to go about that simply, one way would be to look up historical prices for EWZ, and GBP/USD, then calculate the exchange for the amount purchased on the date in question, then convert at the current xchange rate, that should give you a good idea, the xchange rate would have worked in your favour over that period, here's a quick visual of both over a 5 yr period.
5yr USD/GBP

5yr EWZ.

So you would have converted your £ to $ to purchase EWZ, which would have gained about 160% over the 5yr period. If you sold today you'd lock in the EWZ gain, and convert $ back to £, over the same period the $ has gained about 20%

dboswell

tradetime wrote: »

Really not sure how to go about that simply, one way would be to look up historical prices for EWZ, and GBP/USD, then calculate the exchange for the amount purchased on the date in question, then convert at the current xchange rate, that should give you a good idea, the xchange rate would have worked in your favour over that period, here's a quick visual of both over a 5 yr period.
5yr USD/GBP

5yr EWZ.

So you would have converted your £ to $ to purchase EWZ, which would have gained about 160% over the 5yr period. If you sold today you'd lock in the EWZ gain, and convert £ back to $, over the same period the $ has gained about 20%

Yes I think we need a statistically able reader to help

tradetime

dboswell wrote: »

I noticed that some ETFs have USD as the base currency and some GBP. Ironically, ishares use alot of USDs and Soc Gen GBP.

Does this represent an exchange rate risk if I was for example, to buy through H-L here in the UK? I was thinking of the world tracker - or does that in itself represent a currency risk?

Is there any difference between lxyor or ishares in quality and stability or is it all homogenous?

When you convert money from your base currency to another currency, or you invest in products that are a derivative of an underlying denominated in another currency, then there is always a currency risk. That said, with the amount of debt UK. Plc is taking on, I doubt Sterling will be zooming up against many currencies in the near distant future.