is it better stick to euro based stocks

[galway_blow_in]

I think I have somewhat of a similar investment profile with US domiciled ETFs and stocks. Most of my investments are now in european and international ETFs and stocks. However I have been hurt by the big rise in the euro over past month or so in euro terms. Even though I have big euro based investments it has not insulated me from the rising euro. Basically the value of the euro based stocks have not risen as much as the euro and everything else when converted back to euros especially emerging market ETFs has gone down (in euro terms). I think thats just the nature of investments, the euro has risen and everything else including euro stocks have gone down when measured in euros but not when meausured against everything else. The same phenomenon happened when there was big rise in dollar everything looked to be falling until you converted out of dollars. You just have to look at euros themselves as an asset the only way to protect yourself really is to sell everything and hold euros which would be silly. Also I think the rise in the euro is done for now , the southern european economies are still too weak to cope with a rising euro and the ECB will intervene to stop it rising too much especially with Dragi in charge.

the orthodox view would be that you need to mitigate the rising euro by diversifying into dollar or perhaps sterling denominated equities as a weakening of both currencies should translate into a rising market in the usa and the uk etc , if i look at movements in the past month , i am still better off by not having been in dollar or sterling denominated equity markets ( though VEA has a uk percentage ) , the rising euro cancelled out any rise in the s + p and ftse

 

[ixus]

Worth a read:

https://www.bloomberg.com/amp/news/...-are-saying-about-the-threat-of-a-strong-euro

 

[joe sod]

the orthodox view would be that you need to mitigate the rising euro by diversifying into dollar or perhaps sterling denominated equities as a weakening of both currencies should translate into a rising market in the usa and the uk etc , if i look at movements in the past month , i am still better off by not having been in dollar or sterling denominated equity markets ( though VEA has a uk percentage ) , the rising euro cancelled out any rise in the s + p and ftse

I think the euro traded as low as 0.9 dollars upto 2002, then the huge weakening in the dollar which reached its lowest point in 2012 at around 1.5 dollars to the euro. Of course that strength in the euro decimated the weak southern european economies. The dollar regained its strength with a big move in 2015. With the european economies only recently having somewhat of boom and many southern european economies still very weak I cannot see the euro regaining those levels. Europe needs a weak currency for a good few more years , currencies seem to move in long term cycles and this is too early merely 6 months into a european stock market boom for a big move up in the value of the euro.

 

[Colm Fagan]

I’ve just contributed to another forum on the merits or otherwise of Euro hedged global equity funds. My comments may add some value to this discussion.

In the other discussion, I expressed reservations on the merits of hedged equity funds, citing two examples from my own investments.

One of my holdings is a UK company called Phoenix Group Holdings. Its business is completely focused on the UK, and the shares are quoted in sterling. If sterling falls, there is virtually no impact on the company’s operations, and the price is unaffected in sterling terms. From my perspective as a Euro investor, the price has fallen, however. I don’t want to be a currency speculator, so I hedge my exposure to Phoenix, effectively borrowing the value of the investment in sterling and putting it in into a Euro deposit so that, if sterling falls, the amount deposited (in Euros) remains unchanged, but the Euro value of my sterling borrowings has fallen. Good news to counter the bad news in the fall in the Euro value of the shares. Obviously, hedging is beneficial here. It has a cost but it’s a cost I’m happy to bear to shield me from currency fluctuations.

Another of my holdings is a UK engineering company called Renishaw. It shares are also quoted in sterling, but its business is world-wide. If fact, only 5% of its revenues come from the UK. A significant proportion of its costs are incurred in the UK, however.

What happens to its share price if sterling depreciates against other currencies? The answer is that its share price increases by more than the amount of sterling’s depreciation, so the value (in Euros) of my shareholding increases. Why does this happen?

The reason for the increase in the Euro value of my shareholding is that sterling’s weakness has caused the company’s revenues to increase in sterling terms but they remain broadly unchanged in Euro terms, while its costs, a significant proportion of which are sterling denominated, reduce in Euro terms. So, the result (from my perspective as a Euro investor) is broadly unchanged revenues (other than the 5% earned in the UK) but lower costs. Unchanged revenues earned at lower cost mean a higher price in Euro terms, a significantly higher price in sterling terms. In contrast with my investment in Phoenix Group, I do not hedge my Renishaw investment. It would be a waste of money.

Looking at the Global Equity Fund, the companies underlying it consist of a mixture of Phoenix type companies and Renishaw type companies. I would think that Renishaw type companies are in the majority. If that is the case, then it is wrong to hedge the entire fund. In fact, it would seem to be counter-productive and to introduce an unnecessary cost.

I hope that these observations on a Global Equity Fund may have some relevance to this discussion.

 

[galway_blow_in]

I’ve just contributed to another forum on the merits or otherwise of Euro hedged global equity funds. My comments may add some value to this discussion.

In the other discussion, I expressed reservations on the merits of hedged equity funds, citing two examples from my own investments.

One of my holdings is a UK company called Phoenix Group Holdings. Its business is completely focused on the UK, and the shares are quoted in sterling. If sterling falls, there is virtually no impact on the company’s operations, and the price is unaffected in sterling terms. From my perspective as a Euro investor, the price has fallen, however. I don’t want to be a currency speculator, so I hedge my exposure to Phoenix, effectively borrowing the value of the investment in sterling and putting it in into a Euro deposit so that, if sterling falls, the amount deposited (in Euros) remains unchanged, but the Euro value of my sterling borrowings has fallen. Good news to counter the bad news in the fall in the Euro value of the shares. Obviously, hedging is beneficial here. It has a cost but it’s a cost I’m happy to bear to shield me from currency fluctuations.

Another of my holdings is a UK engineering company called Renishaw. It shares are also quoted in sterling, but its business is world-wide. If fact, only 5% of its revenues come from the UK. A significant proportion of its costs are incurred in the UK, however.

What happens to its share price if sterling depreciates against other currencies? The answer is that its share price increases by more than the amount of sterling’s depreciation, so the value (in Euros) of my shareholding increases. Why does this happen?

The reason for the increase in the Euro value of my shareholding is that sterling’s weakness has caused the company’s revenues to increase in sterling terms but they remain broadly unchanged in Euro terms, while its costs, a significant proportion of which are sterling denominated, reduce in Euro terms. So, the result (from my perspective as a Euro investor) is broadly unchanged revenues (other than the 5% earned in the UK) but lower costs. Unchanged revenues earned at lower cost mean a higher price in Euro terms, a significantly higher price in sterling terms. In contrast with my investment in Phoenix Group, I do not hedge my Renishaw investment. It would be a waste of money.

Looking at the Global Equity Fund, the companies underlying it consist of a mixture of Phoenix type companies and Renishaw type companies. I would think that Renishaw type companies are in the majority. If that is the case, then it is wrong to hedge the entire fund. In fact, it would seem to be counter-productive and to introduce an unnecessary cost.

I hope that these observations on a Global Equity Fund may have some relevance to this discussion.

i live in ireland so the markets im invested in have the same currency as myself , your talking about how sterling denominated assets effect you as someone living in euroland ?

 

[Colm Fagan]

You're right. Your scenario is a mirror image of the one I've painted. If you're invested in stocks whose businesses only have Euro exposure, then you don't have to worry about hedging, but if you're invested in a stock that has substantial non-Euro exposure (CRH is the example Brendan quoted in his initial reply), then you should think about currency hedging if you're worried about other currencies weakening relative to the Euro.

 

[galway_blow_in]

You're right. Your scenario is a mirror image of the one I've painted. If you're invested in stocks whose businesses only have Euro exposure, then you don't have to worry about hedging, but if you're invested in a stock that has substantial non-Euro exposure (CRH is the example Brendan quoted in his initial reply), then you should think about currency hedging if you're worried about other currencies weakening relative to the Euro.

Il stick to what I have , I did buy put options dated out to January 2019 with a price 20% below where I bought in, to the value of less than 1% of my portfolio , hopefully those puts are worth nothing in eighteen months