If you were going for a 2 or 3 ETF portfolio (long term investing) would you split between an ETF in GBP and an ETF in USD to spread the risk from currency strengthenings/losses?
Currency expoaure is due to earnings and market view of the constituent companues in the ETF, not the currency in which the ETF is priced. For examole, IWRD and IDWR always differ by exactly the USDGBP exchange rate. Both are IE00B0M62Q58. So it would make no difference which you choose.
If you go to the website of the ETF provider you can read details of the regional and country exposure. Remember that an ETF invests in an international company like Apple it has exposure to currencies everywhere in the world that Apple sells products.
Living in the UK If I held an ETF in GBP my purchasing power would not change due to currency fluctuations.
If If I held an ETF in USD my purchasing power after converted to GBP may go up or down due to currency fluctuations.
But the price of the GBP denominated ETF, say IWDR, will change according to currency fluctuations. Selling one share of either IWDR or IDWR, although they are in in GBP and USD, will ultimatley put exactly the same numbet of GBP in your pocket to spend.
@Richard.W Yes my bad, I am thinking of an ETF which is GBP hedged not just an ETF which is just priced in GBP
So, for example, these two ETFs are both liable to currency fluctuations? If I buy the one in USD and the dollar value improves against the pound, when it comes to sell It would be worth more than if I bought the one in GBP?
They will always be worrh the same.
think of it as paying different currencies into the same pot.
your portfolio only supports a single currency, so if you sell at 1GBP you would get that 1GBP, but if you sold at 1.3USD it would convert back to your currency which is GBP and you would receive 1GBP as per the FX rate of 1GBP=1.3USD.
IF the dollar got stronger against the pound, the price on the funds will reflect this and the payment you receive will get adjusted by the same FX rate.
it’s the same fund so you get the same payout when you choose to sell regardless of which you hold. you are best off just choosing the one in your local currency for ease of calculations.
Thanks for the replies guys. I think I get it.
Just to clarify:
even if the value of sterling weakened over time against the dollar, ultimately it wouldn’t make a difference now splitting my units between the two Vanguard funds I screenshotted above, compared to investing in just one of them?
That is correct… No difference.