Why did US focused funds drop yesterday?

Jeems

This really is a random Saturday morning question but as a newish investor, I'm baffled! So the US stock market was hitting record levels, the S&P 500 was up 0.47% yesterday, yet Vanguards US Equity fund which tracks it, was down 0.71%! A lot of US heavy funds were down too.

I'm sure there's a simple answer to this!

lpgm

1. Did the pound strengthen? If so, that'll knock the value in sterling.
2. When are the US funds priced? There can be a time lag.

A_T

Someone will know better than me but maybe the fund price was set at around midday UK time before Wall Street opened?

bowlhead99

5pm Thursday the exchange rate was $1.292 equals £1.

5pm Friday the exchange rate was $1.3076 equals £1.

By the time the market closed on Friday the rate was $1.3092

So on Thursday a thousand dollars worth of value in a portfolio of US shares would be valued at £774. While now a thousand dollars is only worth £764.

If the US market didn't go up in value and your $1000 portfolio wasn't worth any more dollars, you've lost ten quid, which is more than a percent of your value.

In fact, the US market portfolio of shares did go up in value, but not by as much as US dollars lost value when measured in pounds, so you still lose overall.

Asghar

Jeems wrote: »

This really is a random Saturday morning question but as a newish investor, I'm baffled! So the US stock market was hitting record levels, the S&P 500 was up 0.47% yesterday, yet Vanguards US Equity fund which tracks it, was down 0.71%! A lot of US heavy funds were down too.

I'm sure there's a simple answer to this!

Simply put the Pound has strengthened against the dollar and most currencies yesterday so when the funds are priced back into Pounds they are worth less.

The Vanguard fund is priced at 9.00pm in the evening and before this, yesterday afternoon, the Pound strengthened over 1.1% against the dollar. So your fund would have had to go up by 1.1% just so the price would remain the same. It didn't so in effect, in Pounds sterling your fund is worth less.

The other way round, if you had invested money yesterday, you would have received more dollars for each Pound and therefore received more units in the fund.

A_T

Looking back to last year London based tracker funds of US Indexes didn't fall much after the Brexit Sterling plummet. Why not?

Asghar

A_T wrote: »

Looking back to last year London based tracker funds of US Indexes didn't fall much after the Brexit Sterling plummet. Why not?

Why should they have dropped in value?
US and Global funds went up in value by at least 10% because the Pound dived in value.

AnotherJoe

A_T wrote: »

Looking back to last year London based tracker funds of US Indexes didn't fall much after the Brexit Sterling plummet. Why not?

Why would you expect them to fall? Should and did rise substantially recogniusing the fall in the Pound.

You have three effects working together.
1. Whatever is happening to the US market.
2. Whatever is happening to Dollar vs Pound.
3. What the effect of Brexit was on US markets. Which was a small immediate but transient effect.


PIcking at random the UK-based Fidelity Moneybuilder US Index which tracks the S&P 500, between June 20 and June 27 2016, it went from 71.6 to 84.2 and then over 100 by Aug 2nd.

This is hardly "didnt fall much", very much the opposite it rose substantially !

Meawhile the S&P 500 itself was 910, 872 (small but transient fall caused by Brexit) and 936 on those dates.eg not much movement overall.

So the rise in UK based US funds was down to Sterling fall, and i dont recognise your point about them falling at all. Got some examples of funds that fell? They would need to overcome a sterling based rise of 20%. Currency hedged funds you had maybe?

A_T

Sorry I'm getting confused

Keep_pedalling

A_T wrote: »

Sorry I'm getting confused

Here is a simple example. If you hold $1000 of US shares with the pound worth $2 then you have shares worth £500. If the pound then falls to parity with the dollar a( €1 = £1) and the share price remains at $1000 then although your shares are unchanged in dollars the value on this side of the pond has increased to £1000.

Glen_Clark

I'm probably going to get a b*llocking for mentioning politics again but thats the answer. Politicians accepted we would have to pay an exit fee for Brexit. Their less beliggerant approach to the negotiations looks more helpful to British Industry. So the pound rose to a 10 month high.
As has been pointed out, since US funds are priced here in pounds they fell in value.
(I was investing my ISA allowance around 4pm and because of this changed my mind at the last minute and put it in CSP1- which had fallen instead of VMID - which had risen.)