USD/EUR Hedged ETFs

whatsmoney

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Hi

I think it is commonly agreed at this stage that Irish people should invest in non-UCITS ETFs, based in USA, for tax reasons. So, as it is recommended to buy ETFs domiciled in USA, the currency used to invest will be USD.

Considering a USA domiciled ETF that gives a USD investor protection against Euro/USD currency fluctuation. These are for US investors who want to invest in the Euro region, but want to protect against currency fluctuations. Would there be any benefits for an Irish investor investing in this?
I mean, is the currency hedging offered of any use, considering an Irish investor would be converting the eventual USD proceeds back to Euro after cashing it in, thus cancelling the 'hedging' out? (Possibly a dumb question)

And conversely, further to this point, consider an Irish investor who wants to invest in the US region, but also wants to hedge against the USD/Euro currency fluctuations.... do nonUCITS currency hedging ETFs, sold in Euro, but not domiciled in Ireland, exist?

Thanks!
 

Jim2007

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Well as I understand it funds domiciled in the USA, EEA & OECD countries with a double tax treaty with Ireland will be treated the same way. Which would mean you could also look at Norway, Switzerland etc... not just the USA.
 

whatsmoney

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Thanks Jim...
I suppose my question is for example, if I were to make up a portfolio, lets say 20% cash/bonds, 40% US exposed equities, 40% Euro exposed equities.
What is the optimum way to make up the 40% US and 40% Euro equities part, being mindful of Euro/USD currency exposure?
I guess I would use nonUCITS US based ETFs for the 40% US part.
For the 40% Euro part... is it possible to buy nonUCITS ETFs denominated in Euro, to get exposure to Euro equities? (Sorry if dumb question)
If not, then is it possible to use currency hedged nonUCITS US based ETFs (denominated in USD) that target the Euro region?
Does the hedging part of these ETFs protect against currency fluctuation, or is this protection meaningless as I would be converting back to Euro
anyway in the end after cashing in the ETFs?
 

Jim2007

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Hedging is not free and paying such fees over the long haul will impact your returns. I tend to treat the hedge independent of the investment. If I expect to draw down say 30k this year, then I'll hedge that rather than the portfolio.
 

fistophobia

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Revenue will move the goalposts again if people are found to be evasive in using non - UCITS ETFs.
I think the FX risk is too great to be trying to out-perform using such products.
Basically, they have screwed us, unless in retirement you have such funds that you are already a higher rate tax-payer.
 

galway_blow_in

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forgive me if im off topic but could a hedged ETF be the solution to the following problem

at close today , the vanguard ( veur ) european etf was up 1.97% , this is a euro denominated amsterdam based fund

the u.s listed vanguard dollar denominated etf VGK is currently down 1.10% , a near 3% difference , this despite the fact that the funds are extremely similar with the same holdings for the most part , now the dollar is up 1% against the euro today but this doesnt explain the difference , is this completely down to arbitrage and will a hedged etf fix this problem like we see today ?

i hasten to add that i dont own either of those etfs , i own ezu and vea , ezu is currently down nearly 1.5% despite the imeu amsterdam listed etf closing up nearly 3% , an incredibly discrepancy between two near identical funds
 

Sarenco

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Might it have something to do with the fact that Amsterdam's exchange opens (and closes), what, six hours before New York? Or to put it another way, are you sure you are not comparing the closing price of two funds that are 6 hours apart?

And that's before we get into details like the fact that the funds track different indices (!), with different expense ratios, spreads, etc.
 

galway_blow_in

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Might it have something to do with the fact that Amsterdam's exchange opens (and closes), what, six hours before New York? Or to put it another way, are you sure you are not comparing the closing price of two funds that are 6 hours apart?

And that's before we get into details like the fact that the funds track different indices (!), with different expense ratios, spreads, etc.
the top ten constituents are identical , i just presumed it was a near identical fund

the u.s listed VGK was down all day yesterday so the market time differences doesnt explain things
 
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Sarenco

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The key point is that market sentiment can change rapidly. Sentiment might be positive during European trading hours and then turn sour by the time the US markets open.
 

galway_blow_in

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The key point is that market sentiment can change rapidly. Sentiment might be positive during European trading hours and then turn sour by the time the US markets open.
i understand that basic point but as i said those u.s listed etfs were in the red all day , was the same with the japan etf despite it being up 2% on the euronext , the difference in fund make up appears not to be significant

im just intrigued at the significant price difference , you mention spreads but its not like the u.s listed etf trades on very thin volume , is it a case of the u.s listed etf got ahead of itself of late ? , i remember a few years ago when the bank of ireland ADR was often over priced relative to the dublin prime listing , is it perhaps one of those anomalies ?
 

galway_blow_in

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What do you mean by "all day" - US trading hours or something else?
the fund was red all day despite the near identical funds on the euronext trading well up all day , the dollar having gained 1% against the euro didnt explain the difference
 

RedOnion

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There's automated computer trading on these ETFs to exploit any arbitrage opportunities that arise within seconds, so there's a genuine reason for any difference when the market is trading.

The USD version of VEUR is VEUD. Compare that to VGK and you've removed the FX noise. Then it's down to the difference in the indices they are tracking and timing.
 
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