Foreign Exchange and your spare change
It seems like no matter if we are asleep or awake, global markets are active and moving. But its not just equities and bonds moving, currency markets are moving as well. When the Aussie Dollar moves against the global currencies, it can also influence your investment portfolio returns.
Raiz portfolios have global exposure
There are global stocks and/or bonds in every Raiz Portfolio of ETFs. That makes you an international investor! It also means that you have some degree of foreign exchange exposure. Because Raiz ETFs tracks the performance of these overseas products in terms of AUD, that means as the AUD moves, it can result in moves in the ETFs on top of the movement of price of the stocks or bonds themselves.
ASX ETF’s are quoted in Aussie Dollars
All ETFs that Raiz invests in on your behalf are quoted in Australian dollars. It doesn’t matter if the ETF is tracking is the ASX200 Index, our local Top 200 on the Aussie Stock Exchange, or if it is tracking the performance of the US S&P500 Index, the price you see in your performance graph is expressed in Aussie Dollars.
If your portfolio with ETFs tracks foreign companies, it will benefit if the AUD weakens versus the currency where the stocks are traded. On the flip side, if the AUD has a strong period, this will result in a reduction of the Aussie ETF price by that amount.
E.g. For IVV, the ETF that tracks the performance of the S&P500 Index, the returns of the ETF are dependent on both the performance of the equity index and the movement of the AUD/USD exchange rate.
A falling AUD can help cushion portfolio performance
The USD is often seen by global markets as a safe-haven currency, and often strengthens against the AUD when equity markets are in decline. So even if a US or global stock or bond tracking ETF is experiencing negative returns, the falling AUD can act as a brake pad, helping to reduce the negative returns of a falling market.
The same affect will happen in reverse. If the AUD is particularly strong, it will reduce the returns in Aussie Dollar terms of any overseas tracking ETFs.
Overseas exposure can help diversification
At Raiz, all seven of our portfolios have some overseas exposure, and the same global tracking ETFs are all available to those using the Custom Portfolio Option. By having some exposure to global assets and global currencies, you are not just limited to the returns from what is happening with Australian companies and our domestic economy, but you can also track the performance of assets and companies around the world 😊
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