Hedging Currency Risk on US Stock Investments

[Del3D]

Hi all,

I have checked through the archives and have read some discussions on the topic of currency hedging, but I am interested in what investment strategies people are actually using for hedging the currency risk for non-Euro invesments.

My personal situation is that I have found the US markets the cheapest way of buying ETFs, Commodities and Stocks (in US and non-US based companies). As such, I now have a significant (to me!) USD investment exposure.

Currently, I am holding my funds in Euro and I have a loan in USD against this (through Interactive Brokers). The interest accruing on the Euro balance is offsetting against the interest due on the USD balance, but it is still costing me approximately 3%. This is a *short term* hedge as the recent devaluation in the dollar is reducing my stock value, but also my USD loan.

I am now looking for a longer term hedge against my USD stocks, so that I can close out my loan (i.e. Sell EuroDollar, thus reducing my Euro balance).

One possibility that I have been investigating is the use of future contracts. One such contract type would be "E-Mini EuroFX (E7 on CME)" It would provide 62,500 Euro exposure to USD/EUR for an initial margin of $1,418 and on today's price of $1.3466 it would cost me $1.3478 (x 62,500) for a Sep'07 contract (that I could roll) - Yes, I know this contract would be in USD! but the future contract's maintenance would be significantly less than the exposure ($1050).

I am very early in my research on this topic - I would appreciate if people had advice on:
- highly leveraged currency exposure (as a hedge) products that people are actually using? I am particularly interested in long term (5-10 years +) structures with minimal commission.
- am I just a currency speculator? should I just leave my USD invesments to devalue or increase in value depending on the Euro/dollar changes?
- Unusual tax implications?

Thanks for any advice,

Del3D.

 

[rusty]

can you estimate what percentage of your US based holdings has underlying assets in US securities as opposed to non-US securities? And if they are non-US, whether the investment company hedges back into dollars?

 

[Del3D]

can you estimate what percentage of your US based holdings has underlying assets in US securities as opposed to non-US securities? And if they are non-US, whether the investment company hedges back into dollars?

I would estimate that 60-70% of my investments (common stock, options, ETFs and commodities) are quoted and make returns in USD. This would include a diverse set; for example, some Chinese stocks that I own that would be primarily listed on the NYSE and make returns in USD despite being a China growth play. These are long term investments that I would not like to see eroded by a falling dollar (relative to the Euro). As far as I am aware they would not be hedged against the dollar to a great extent, except in so far that a strengthing Yuan (against the dollar) would improve profits in my China example.

Part of my desire for a hedge on the dollar is due to the negative commentary from Economists on the long term strength of the dollar. I know this is speculative, but I would prefer not to have to be concerned with such issues.