Newbie question CCY [currency] RISK

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
jokerr
Posts: 7
Joined: Fri Feb 08, 2019 6:06 am

Newbie question CCY [currency] RISK

Post by jokerr » Thu Mar 28, 2019 5:30 am

Hello!

I am confused regarding the ccy risk...

Can you please explain to me the following?

I if buy the suggested (from wiki) allocation of stocks and bonds do i have a ccy risk? If yes how do i control it?
*My home ccy is in EUR


Bonds
iShares Global Aggregate Bd ETF HAcc IE00BDBRDM35 Global aggregate hedged (€) † USD

Equity
iShares Core MSCI World ETF USD Acc IE00B4L5Y983 Global, developed markets Large+Mid USD

iShares Core MSCI EM IMI ETF USD Acc IE00BKM4GZ66 Emerging mkts IMI : Large+mid+small USD

TedSwippet
Posts: 2571
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Newbie question CCY RISK

Post by TedSwippet » Thu Mar 28, 2019 7:06 am

jokerr wrote:
Thu Mar 28, 2019 5:30 am
I if buy the suggested (from wiki) allocation of stocks and bonds do i have a ccy risk? If yes how do i control it?
Is your concern that these ETFs are denominated in USD rather than EUR? If yes, note that the denomination currency of an ETF is immaterial to investors. This wiki page explains:

Non-US investors and ETF currencies - Bogleheads

So no additional currency risk from using these USD denominated ETFs. Of course, on the equity side you do still have currency risk/reward from the holdings within them that are non-EUR assets, but this is generally part of the overall goal of holding a globally diversified stock portfolio. On the bond side, the USD denominated ETF you cite is hedged to the EUR, so no currency risk (or reward!) at all with this one.

andrew99999
Posts: 556
Joined: Fri Jul 13, 2018 8:14 pm

Re: Newbie question CCY RISK

Post by andrew99999 » Thu Mar 28, 2019 8:14 am

jokerr wrote:
Thu Mar 28, 2019 5:30 am
I if buy the suggested (from wiki) allocation of stocks and bonds do i have a ccy risk? If yes how do i control it?
*My home ccy is in EUR
You want some assets in home currency to hedge against your home currency and economy outpacing global.
You want some assets out of home currency to hedged against your home currency and economy performing poorly vs global.
There is no "correct" allocation since nobody knows the future.

My own thoughts are around 50-70% in home currency.
But that includes all assets.
So if you have a house that is 30% of your assets and EUR bonds that are another 20%, then you are already 50% hedged into your home currency so you are probably ok already.
If you have no home and not much bonds, then you may want to increase your home currency allocation of equities either through a home country and/or home region bias (eg Europe index tilt) or else a EUR-hedged global fund tilt.
The home country or home region tilt will cost you some diversification, and the hedged fund will cost you in terms of a drag on returns, and doing neither will cost you in terms of currency risk. So it is really a trade-off between downsides. I kind of like a combination of each to moderate the negatives of each.

ICH
Posts: 221
Joined: Wed Jun 13, 2018 3:08 am

Re: Newbie question CCY RISK

Post by ICH » Thu Mar 28, 2019 11:01 am

jokerr wrote:
Thu Mar 28, 2019 5:30 am
If yes how do i control it?
You are already controlling it by having bonds hedged to euro. That's enough, for me.

To avoid unnecessary currency conversion when buying / selling the ETFs, buy them in euro (trading currency) as follows :

iShares Global Aggregate Bd ETF HAcc IE00BDBRDM35 Global aggregate hedged (€) † USD -> ticker AGGH, traded in euros on the LSE, Six Swiss, Xetra

iShares Core MSCI World ETF USD Acc IE00B4L5Y983 Global, developed markets Large+Mid USD -> Traded in euros in the following exchanges:
-ticker SWDA, on the Borsa Italiana
-ticker EUNL, on the Xetra
-ticker IWDA, on the Euronext Amsterdam

iShares Core MSCI EM IMI ETF USD Acc IE00BKM4GZ66 Emerging mkts IMI : Large+mid+small USD -> Traded in euros in the following exchanges:
-ticker EIMI, on the Borsa Italiana
-ticker IS3N, on the Xetra
-ticker EMIM, on the Euronext Amsterdam
jokerr wrote:
Thu Mar 28, 2019 5:30 am
*My home ccy is in EUR
For today, yes. Tomorrow, who knows? :o

Post Reply