Slightly confused about fund/etf currencies

[Deleted User]

Hi
Just confused trying to understand these funds and contemplate the effect on the drop/rise of the pound if I invested in the following...and basically thinking that the currency drop/gains could thrash the drop/gains in the actual equities


1. iShares Core S&P 500 UCITS ETF USD (Acc) (CSP1) GBP
Fund currency is USD according to the factsheet, but says GBP in the title.

2. Vanguard US Equity Index Acc OEIC.
The factsheet says the currency GBP.


3. This may sound like a stupid question, but could you buy American shares in pounds? For example facebook. Or is it only in dollars? For example the Vanguard one above, how exactly can they take my money in £ but invest in the USA stock market?

Linton

The fund's currency does not matter significantly, it just changes where the currency conversion takes place. If the underlying assets are priced in $s and are tied into the $ economy then a fall in the £ against the $ will lead to an increase in prices in £ terms assuming the $ price does not change.



If you want to buy $ US shares you need to convert your £s to $s, or work through an intermediary who will do that for you. In your Vanguard example, Vanguard will effectively take your £s, convert them to $s at the then current rate and then buy US shares. When Vanguard later report the fund price they will base it on the value in $s converted to £s at the later current rate. In practice I guess Vanguard have large reserves of cash in various currencies so you will pay into Vanguards £ pot and they will buy the shares from the the $ pot. They wont convert the currencies individually for each customer transaction.

MK62

Have a look at this...

https://www.investorschronicle.co.uk/2017/01/12/your-money/financial-planning/the-cost-of-foreign-currency-denominated-shares-and-etfs-PtRp68lMiRCQAAEsCBtq8L/article.html

it should explain it

But make sure to read the bit about currency hedging - the iShares ETF you mentioned also has a GBP Hedged share class (launched after that article was written)

[Deleted User]

Thanks, it makes a bit more sense.

I'm using Fidelity, as there is 0% charge for ETFs. The factsheets say the currency is EUR but the title says GBP and EUR. Do you know that's possible?

For example:
iShares MSCI Europe UCITS ETF EUR (Acc) GBP
Vanguard Euro STOXX 50 UCITS ETF - EUR GBP

Linton

If you buy a Vanguard US Index fund in the UK then Vanguard will do any currency conversion. ETFs have the problem that as they purely trade on the worlds stock markets the ETF doesnt get your money directly and so cant do any currency conversion. So if they want a global customer base what they do is to have separate versions, I guess all just front ends to the core fund, on each exchange so that people can buy and sell in their local currency.


So the funds you list operate in Euros but can be bought and sold in London in £s.