UK ETFs & Currency risk

[anley]

Something that I always struggle with is currency risk, so was wondering if anyone could try and clarify a point with Exchange Traded Funds that invest outside the UK.

Barclays iShares offer an ETF on the Japanese market (ticker IJPN) which is priced in Sterling and invests in big cap Japanese shares. The ETF doesn't hedge the currency. So it it possible to say buy the ETF today and the JPN market to rally 25% over the next year but make NO money because the currency has moved against Sterling?

Of course the opposite would also be possible, the JPN market moves down by 25% over a year but the ETF stays roughly at the same value because the currency has moved in your favour.

Any help would be really useful, thanks

 

[Tuffty]

Correct. If the ETF is priced in Sterling it will include the gain/loss from the currency move.

For example between July 03 and May 05 the S&P500 Index went up 16% but the ETF ishare was trading around 620 at the start and finish. The £ to US$ currency move eat all the gains for a Sterling holder (ie US$'s became less valuable).

 

[anley]

Tuffty, yes you're right and thanks for your reply. I spoke with someone at Barclays iShares and they confirmed all of this.

 

[*JDR*]

So what are you going to do about managing the risk yourself?

I often ponder this myself and wonder whether it is wise to hedge the currency in some way.

If I ever do go large into an ETF for the long term, then I believe I would.