FI/RE for Non-US residents: Currency Hedged SP500 Funds

FI/RE for Non-US residents: Currency Hedged SP500 Funds

The other day I was on Reddit and someone had said his advisor told him there weren’t any ways to hedge against a USD ETF. This particular person’s home currency was the Euro, which is why I was so annoyed at the advisor. This was immediately a red flag, as most advisors should be aware of such a product, or at least be able to Google it and see an answer on the first page of their search.

If you want to get access to the US large cap stock market, you can buy an ETF (or similar product in foreign countries) hedged against EUR, GBP, CHF, CAD, and AUD. I couldn’t find a JPY hedged fund, but if anyone knows of one, please let me know so I can add it below.

Why Invest in a currency hedged fund? 

If you live in a country with the Euro as its currency, you hope that the Euro appreciates over time. It will be cheaper for you to travel to other countries and goods will generally be cheaper because import costs will be less.

If your home currency is the Euro, in times of strong dollar, like in the last few years, your investment in the SP500 wouldn’t have done so well even thought the SP500 was in a bull market. The reason is that USD outperformed EUR. So even though the SP500 did amazing, your currency sucked against USD. Sure, EUR could’ve gone the other way, but if you’re trying to do passive investing, betting on currency and the markets isn’t something you want to be doing.

If you want to eliminate this risk, I’d recommend you get a currency hedged ETF. That way, it doesn’t matter what EUR or USD does, you’re just betting on the SP500. It doesn’t cost that much to get a currency hedged ETF either.

Firms with Currency hedged funds

I found currency hedged SP500 index funds for the major currencies — I couldn’t find one for JPY though, and that was a bit odd to me. This might not be the cheapest hedged SP500 ETF for your currency, I just googled a bunch and did a best comparison. For comparison to US funds, VTSAX has a .04% expense fee, which requires a $10,000 minimum investment. VTSMX, which is the Investor shares version, has a .15% expense fee if you can’t meet that minimum. So having a currency hedged fund is really not all that much more expensive. It’s like only having Investor shares instead of Admiral shares.

EUR (Euro) – Lyxor S&P 500 EUR Daily Hedged UCITS ETF (.15% expense fee, owned by SocGen)

iShares S&P 500 EUR Hedged UCITS ETF (.2 expense fee, by BlackRock)

GBP (British Pound) – iShares S&P 500 GBP Hedged UCITS ETF (.2 expense fee, by BlackRock)

UBS ETF (IE) S&P UCITS ETF GBP Hedged (.22 expense fee)

CHF (Swiss Franc) – iShares S&P 500 GBP Hedged UCITS ETF (.2 expense fee, by BlackRock)

CAD (Canadian Dollar) – ishares S&P 500 CAD Hedged (.11 expense fee, by BlackRock)

AUD (Australian Dollar)- iShares S&P 500 AUD Hedged (.1 expense fee, by BlackRock)

JPY (Japanese Yen) – Dow Jones seems to have a non-tradable index for JPY hedged SP500 on a monthly basis — maybe that explains why it’s only returned 17 percent this year on it.

BlackRock seems to have a good amount of currency hedged funds for a decent expense ratio (.1% to .2%). It has funds from non-USD countries hedged against USD as well. From my research, BlackRock has the cheapest fees for these currency hedged funds with the exception of EUR. Again, I just googled the above, so there might be cheaper options out there.

If you know of other cheaper expense fees for currency hedged SP500 funds that are not listed above, please let me know! Or for other currency hedged SP500 funds!

Are you guys invested in currency hedged ETFs for either USD or other currencies? Interested to see what percentage of non-US investors invest in the SP500, either hedged or unhedged.

 

2 thoughts on “FI/RE for Non-US residents: Currency Hedged SP500 Funds

  1. Currency hedging can be achieved but is rarely optimal. After our research, currency hedged ETFs have a slight correlation error which can translate in a large difference in your total returns after decades in the market. We chose to invest in USD even if our home country trades in Canadian dollars.

    1. To me, it’s better to use a currency hedged ETF if the costs are about the same in terms of expense fees. The ETFs for the most commonly traded funds only have an expense fee of around .2 percent. Are you looking at this one: https://www.blackrock.com/ca/individual/en/products/239727/ishares-sp-500-index-etf-cadhedged-fund

      It’s kind of interesting looking at the cumulative performance – why is it off by more than the MER/EF the fund specifies? Have you ever asked? It’s causing the return to vary by a lot in a decade. For me personally, if I lived in another country, I wouldn’t want to bet on currency (who knows where the Euro or pound goes with Brexit?). You should do a Monte Carlo simulation on what happens if funds are left unhedged! It would be interesting to see the SWR needed for that! I’d argue currency distributions are more subject to exogenous factors than equity valuations are though.

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