International shares and currency hedging

[tims]

My first post. I want to invest in overseas shares (using managed funds) and now seems like a good time as any as most markets are depressed.
One thing I am worried about however, is the fact that the Australian dollar has dropped significantly against most major currencies and I've read about currency risk where a (future) escalating Aussie dollar will significantly eat into the value of the fund if I invest today.

I don't really understand how currency hedging and managed funds work - should I be looking for funds that have a good long term performance and not worry about hedging or funds that have partial or 100% hedging over a long period?

Any help/suggestions appreciated.

cheers

Tim

 

[cutz]

Hi Tims,

Good question, that’s something that’s been bugging me for a while. I’m also looking at owning an index fund (SPY) when the time is right but I don’t want to purchase it in aussie dollars.

I’ve read here that IB extend a loan in US dollars for US stocks. A search through the brokers site does not mention this so eventually I’ll do a small trade and see what it looks like in the account.

Hopefully someone can enlighten us.

 

[Spanning Tree]

If you invest in a managed fund that invests overseas then if the Australian dollar strengthens in the future then foreign dividends that get paid out will be worth less in Australian dollars. But how do you know that the Australian dollar will strengthen into the future?

What I do is diversify my investments by investing some in Australian assets and some in foreign assets. About 30 per cent to 50 per cent foreign I think is good. If the Australian dollar crashes (it did a few months ago) then returns from foreign shares rise.

When buying foreign managed funds I recommend you choose the unhedged option and not the hedged option. Hedged funds invest in foreign companies but hedge everything in Australian dollars so that you don't get any currency diversification at all.

I think using iShares ETFs is good for investing in foreign companies.

I’m also looking at owning an index fund (SPY) when the time is right but I don’t want to purchase it in aussie dollars.

What about IVV on the ASX?

 

[cutz]

I think using iShares ETFs is good for investing in foreign companies.

What about IVV on the ASX?

Hi Spanning Tree,

Yeah i initially did consider IVV but i'm looking at a fund which is highly active in the options department.