Vanguard ETF - currency changes

Cleaver

I have a chunk of money in the Vanguard S&P 500 UCITS ETF (VUAG). It's the accumulation  version.

I clocked that it'd been a positive week for the S&P 500 but was surprised to see today that the value had dropped slightly from yesterday, despite the market going up each day. I should have probably done my research on this, but it's only just occured to me that it's presumably down to currency differences between GBP and USD.

For example:

• 7th December: S&P was up around 0.8%. The USD Fund NAV was up 0.8%, but the GBP Market Price was only up 0.16%.
  
• 8th December: S&P was up around 0.4%. The USD Fund Nav again replicated it being up 0.4%, but the GBP Market Price was up 0.65%.
  

This is probably incredibly obvious and I'm slow to catch on, but there we are!

Do people who invest in this ETF or similar just accept that currency fluctuates and you win some and lose some? Is there a better option? is my understanding right or have I missed something?

I wanted this chunk of my portfolio to just simply track the S&P 500, so if I see that the market is up 1% in a week, this part of my portfolio is up 1%. But this means it's not that simple. Nothing ever is hey?

cloud_dog

Yes.  I want my ex-UK invested GBP exposed to the other currencies, especially as the USD is the worlds main currency, and an awful lot of my costs are incurred in USD but paid for with GBP.

Swipe

Cleaver said:

Do people who invest in this ETF or similar just accept that currency fluctuates and you win some and lose some? Is there a better option? is my understanding right or have I missed something?

Nothing I really concern myself about as the currency fluctuations always seem to revert to the mean in the end. If you are buying when the pound is strong you are buying more units and then you will reap the rewards when the pound weakens.

Stargunner

Cleaver said:

Do people who invest in this ETF or similar just accept that currency fluctuates and you win some and lose some? Is there a better option? is my understanding right or have I missed something?

If you didn't want to be effected by currency fluctuations, you could invest in a hedged version.

As an example,
iShares S&P 500 GBP Hedged UCITS ETF (Acc)

Altough, currency fluctuations tend to even themselves out over the long term.

dunstonh

 but it's only just occured to me that it's presumably down to currency differences between GBP and USD.

It makes a big difference in short term periods but less over the long term.

Here is last month showing the currency hedged version of the Fidelity US index fund and normal version.



When Sterling is low its better being the currency hedged version.  When sterling is high, its better being in the conventional version.  This is because when sterling falls, you are better being the conventional version and when sterling rises you are better being currency hedged.

When Sterling fell to close parity to the dollar, we adjusted our portfolios to utilise the hedged version.  It paid off.



However, now we are about to remove the hedged version as Sterling gets back to 1.30 to the dollar.    Of course, sterling could go back to 1.50 or even 2.00 but nothing about the UK makes that seem likely any time soon.

If you want true passive performance, you should go with currency hedging.  However, as currencies tend to float between bands nowadays and globalisation has brought currencies closer together, the long term difference is going to be much smaller.  With globalisation in reverse at present, you could see fluctuations increase again.  Who knows?

Prism

I just accept the currency fluctuations, mostly because the short term equity returns are directly related to the currency returns. This month, the US Fed hints that it may cut interest rates, therefore the Dollar drops, therefore the US equities rise by about the same amount. Hard to have one without the other.

Cleaver

A big thanks to everyone who helped out with explanations on this, I appreciate it.

I get the theory now. I'm still a bit confused looking at the closing prices of £ and $ for the fund alongside the +/- % of the $ vs £, as I'd expect it all to work out. But maybe it's not that simple?

E.g. 

On the 18th the $ was worth £0.7891 and on the 19th it was worth £0.7904. So the £ fell around 0.16% against the $.

The closing prices for the fund were as follows:

19 Dec 2023 US$89.6480 £70.2000

18 Dec 2023 US$89.1189 £70.4350

The S&P gained 0.59% on the 19th. The $NAV price of the fund was up 0.47% and the £NAV price of the fund was down 0.33%.

I would expect the overall change of the £NAV price to be 0.43% positive (the 0.59% S&P gain, minus the 0.16% currency change), rather than down 0.33%.

I'm sure that's just my lack of understanding about the detail though, as what you've all said above makes sense to me.

wmb194

Cleaver said:

A big thanks to everyone who helped out with explanations on this, I appreciate it.

I get the theory now. I'm still a bit confused looking at the closing prices of £ and $ for the fund alongside the +/- % of the $ vs £, as I'd expect it all to work out. But maybe it's not that simple?

E.g. 

On the 18th the $ was worth £0.7891 and on the 19th it was worth £0.7904. So the £ fell around 0.16% against the $.

The closing prices for the fund were as follows:

19 Dec 2023 US$89.6480 £70.2000

18 Dec 2023 US$89.1189 £70.4350

The S&P gained 0.59% on the 19th. The $NAV price of the fund was up 0.47% and the £NAV price of the fund was down 0.33%.

I would expect the overall change of the £NAV price to be 0.43% positive (the 0.59% S&P gain, minus the 0.16% currency change), rather than down 0.33%.

I'm sure that's just my lack of understanding about the detail though, as what you've all said above makes sense to me.

You also need to factor the time that the fund prices. It might not be at the end of the day and so it may include part of the previous day,

Stargunner

You also need to factor that the futures price of closed stock markets effect the price.