LSE ETF in GBP without USD exposure - any good ones available?

Halabala9

Hi,

I am new to investing so before I make long term decisions I have got to check every detail as it is not as easy as I thought

I just posted in someone else`s topic ( https://forums.moneysavingexpert.com/discussion/6125781/emerging-markets-fund#latest ) as I am a bit confused about ETFs available on LSE that although are listed in GBP but seem to be denominated in USD.

I am interested in Polish stock exchange ETF (I can`t share the link to HL here for some reason):

ISHARES V PLC MSCI POLAND UCITS ETF USD ACC (GBP) (SPOL)

ISHARES V PLC MSCI POLAND UCITS ETF (IPOL)

There are two ETFs to choose from. One in USD and one in GBP. The thing is that both of them have got exactly the same "Key Investor Information Document", which says: "Your shares will be denominated in US Dollar, the Fund's base currency."

Since dollar is massively overpriced these days as it always is during every crisis, I am expecting USD to drop against GBP long term and don`t want to have long term exposure to USD.

The question is, if I buy this ETF in GBP and lets say the value of those 10 Polish companies goes up 20% but at the same time USD lost 20% value against GBP, does it mean that I am on 0 (minus Fund charges obviously) even though I bought GBP ETF?
If so are there any "pure" GBP ETFs available, as buying something in GBP denominated in USD seems to expose me to double risk, one is ETF value and the second one is currency fluctuations which I would prefer to avoid.

Sorry once more for silly question and thanks in advance for the answer!

Thrugelmir

Have you factored in that Polish companies aren't traded in either $ or £ but the Zloty. 

Halabala9

Thrugelmir said:

Have you factored in that Polish companies aren't traded in either $ or £ but the Zloty. 

Well, that`s another confusing part as "Key Investor Information Document" doesn`t say anything at all about PLN involved in the process.

Linton

Duplicated from another thread:

Assume that the price of the £ fund is £1/unit and that at the start of the year £1=$1.2:

Assume that the underlying investments are in euros and the pound keeps in step with the euro:

You buy the GBP version:

1) You spend £100 and buy 100 units

2) The units increase in value by 10% and are worth  110 euro

3) You sell the units getting £110

Now lets assume you buy the $ version at a rate of $1.2/unit

1) You spend £100 to convert to $120 and buy 100 units

2) The units increase in value by 10% and are worth 110 euro

3) The $ drops to 1 euro=£1=$1.4 ( a drop of 17%), so the units are now worth 110 euro =$154

4) You sell the units to get $154 which you exchange for £110

Halabala9

Is my calculation right?

I buy the ETF index for 20.000£ today in GBP. According to KIID it is denominated to $, so I assume today`s exchange rate:

6.04.2020 - GBP/USD = 1.23$ = 20.000£ * 1.23$ = 24600$

1 year later the ETF index went up 20% but the dollar lost 30% of today`s value.

6.04.2021 - GBP/USD = 1,6$  //  24600$ + 20%*24600$ = 29520$. If I was in the USA I am 20% richer but now I want to sell it so I assume it will be denominated back from USD to GBP 29520$ / 1,6 = 18450£.

Am I right that I lost 1550£?

Thrugelmir

Mike997 said:

Thrugelmir said:

Have you factored in that Polish companies aren't traded in either $ or £ but the Zloty. 

Well, that`s another confusing part as "Key Investor Information Document" doesn`t say anything at all about PLN involved in the process.

When trading in complex instruments it will deemed that the investor is competent and knowledgeable. 

bowlhead99

Mike997 said:

Is my calculation right?

I buy the ETF index for 20.000£ today in GBP. According to KIID it is denominated to $, so I assume today`s exchange rate:

6.04.2020 - GBP/USD = 1.23$ = 20.000£ * 1.23$ = 24600$

1 year later the ETF index went up 20% but the dollar lost 30% of today`s value.

6.04.2021 - GBP/USD = 1,6$  //  24600$ + 20%*24600$ = 29520$. If I was in the USA I am 20% richer but now I want to sell it so I assume it will be denominated back from USD to GBP 29520$ / 1,6 = 18450£.

Am I right that I lost 1550£?

You can see the example calculations on the other recent thread you were on.  If an index measured in dollars goes up because the companies are worth more dollars, but dollars are not worth as many pounds or euros as they once were, you may not make any profits in pounds or euros.

If you are in the USA and the fund went up in dollars you might feel 'richer' if the fund is worth more dollars but if the Polish companies are only worth more dollars because the dollars are relatively weak and each dollar doesn't buy very much on a world stage, you are not really 'richer'.  When you go on holiday to Europe or import products from overseas, everything costs you lots of dollars. However, you might be richer than if you had only invested in something that held dollar assets and made dollar profits. But you don't need to focus on whether the person in the USA is getting rich or not. 

The question is, are the companies in poland worth more pounds or not. As a UK investor you don't really care if they are worth more euros or zloty or swiss francs or US dollars or hong kong dollars or japanese yen. If you want exposure to the largest Polish stock-exchange-listed companies, weighted by free float market cap, then buy the index fund (either the one with a price published in GBP or the one with a price published in USD - it is the same index).

Linton

Mike997 said:

Is my calculation right?

I buy the ETF index for 20.000£ today in GBP. According to KIID it is denominated to $, so I assume today`s exchange rate:

6.04.2020 - GBP/USD = 1.23$ = 20.000£ * 1.23$ = 24600$

1 year later the ETF index went up 20% but the dollar lost 30% of today`s value.

6.04.2021 - GBP/USD = 1,6$  //  24600$ + 20%*24600$ = 29520$. If I was in the USA I am 20% richer but now I want to sell it so I assume it will be denominated back from USD to GBP 29520$ / 1,6 = 18450£.

Am I right that I lost 1550£?

You lost £1550 because the % rise is currency dependent.  In $ terms the ETF increased in value but in £ terms it decreased.  If the $ ETF actually invested in the FTSE100 which increased in value by 30% the fall in the $ would have caused a greater than 30% rise in the ETF value in $ terms.  The currency of the ETF does not matter, what matters is the currency of the underlying investments.

Halabala9

Thrugelmir said:

Mike997 said:

Thrugelmir said:

Have you factored in that Polish companies aren't traded in either $ or £ but the Zloty. 

Well, that`s another confusing part as "Key Investor Information Document" doesn`t say anything at all about PLN involved in the process.

When trading in complex instruments it will deemed that the investor is competent and knowledgeable. 

Your posts are very useful indeed. I assume you are one of those that were born with all the knowledge?