Hi Everyone. If this has been discussed before please let me know or point me in the right direction.
In simple terms can one explain the pros and cons of owning US Stocks in an ISA in respect to the GBPUSD currency. I have been trying to read about hedging and I’m just trying to understand the risk from a currency aspect of owning us stocks.
As an ISA everything in the ISA has to be in sterling. So how does the affect my US stocks?
for example, is I buy Apple (or any US stock) traded in $ when the pound is weak. That stock rises or falls in the future, but so can the sterling, it can fall or rise. So owning US stocks, in my ISA. will I want the pound to keep falling or for it to rise. When I go to sell it will have to convert it back to dollars and then back into sterling to withdraw?
at the moment I only own gold and SP500 ETF which I bought already in sterling. Is this better or should I hold SP500 and Gold in $ within my ISA. Does all of this matter long term?
Anything to help me understand this idea especially from the point of view of holding it in my ISA in sterling but the holdings being denominated in $ and what would happen in the next 10 years if the sterling returns to strength or continues to fall?
Many thanks
No it doesn’t, anything you can see in the ISA mode is fine, doesn’t matter what currency. If it’s not ISA eligible it’ll only be in Invest (or should be)
The only difference in buying foreign is it obviously can strengthen or weaken between when you buy and sell.
Looking over a long period the pound has weakened against the dollar.
Taking a decade back 1 pound got you 1.57 and now that same pound gets you 27 cents less. So buying power has slightly reduced over the years.
But that would work for you when selling, as you get more pounds for the dollars.
And depending on the stock the Forex impact is negligible. In the case of AAPL double win.
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Thank you very much.
So if I was to buy lets say apple in my ISA. it would sit in my account in $? I thought for some reason it would be held in sterling?
I was thinking at the moment it would be a double win since like 2016 had you been invest in the US market. The risk would be then on the flip side assuming you think the pound is at its lowest point. For example a brexit deal happens and the pound starts to strengthen over the next 2 years. In that case the pound strengthening compared to the dollar would hurt any gains from any increase in the US share price. Or compound the loss if the US share went down and the pound went up.
When you buy lets say ETF which is in sterling, they are considered hedged? how to they avoid this problem?
also from a longterm investing perspective, 25yrs+. Is currency movement something to consider, or just not worry about the currency and buy the investments that fit your strategy?
At the moment I hold in my ISA a SP500 ETF in sterling and gold in sterling. Any advantage to holding them in the ISA but denominated in dollars?
Thank you
If a stocks shares are say $1 each you need to buy it so that’ll be 77p
You’ll then own 1 stock worth a dollar.
Say the dollar strengthens and that dollar is now worth 78p if you sold even if the stocks price remained identical (pretending zero spread) when sold you would have gained 1p
When you hold shares in other currencies you’ll still see what £ it’s worth based on the exchange rate. And that’s why even when the stock markets close it’ll fluctuate with the forex markets open.
If you click the word Return on a foreign stock you own it’ll show the impact.
I don’t personally look at forex impact over time, it’s the instrument that matters. If I had the choice of identical ETFs tracking in various currencies I’d probably take £. The advantage I can sell at any point without any FX impact.
However my style of investing is very much swings, my “long term” is about 6mths and those are gold stocks like GGP and KEFI.
I hold no ETFs but if I did it would be heavy on ones like SGLN, IITU, EQQQ, IUSA
The advantage of the ISA is simply protecting against CGT. So it’s definitely worth maxing out your £20k allocation each tax year before switching to the invest if you are lucky enough to have that much to invest.
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Thanks for the feedback.
It’s something I think I understand, but just wanted to get clarity. As it’s a bit abstract when currencies get involved.
At the moment I’m only focused on individual dividend and value stocks in the UK as currency and other factors are less things I have to worry about.
My international exposure is primarily from ETFs. I do own SGLN and VUSA for my US and gold exposure.exposure.
Was mainly just curious to what other factors I would have to be aware of, if I was to buy individual US companies with a 3-5 year horizon.
Thanks again