The US dollar has lost a lot of value. This is how the MSCI World reacts to this downward trend. What can you do now as a private investor?
ETFs on the MSCI World are real classics. But what many people overlook: There is a high degree of dependence on the development of the US dollar. This can have a positive but also a negative impact – this year it was negative. So are currency-hedged world ETFs preferable?
Since the USA accounts for more than 70 percent of the weight in the MSCI World, the performance for investors in the euro area depends heavily on the exchange rate between the US dollar and the euro. This year, the weak dollar is significantly depressing returns calculated in euros, even though stock prices in the USA are rising. The alarm bells are ringing for many private investors because performance has recently suffered from the weak US dollar. Markus Richert, financial planner at Portfolio Concept Vermögensmanagement GmbH in Cologne, provides an example of this:
“If you invest 10,000 euros in a US stock fund at an exchange rate of one to one, you get shares worth 10,000 US dollars. If the euro rises so that one euro is now worth 1.10 US dollars, the value of the investment in euros falls to around 9,091 euros – a loss of almost ten percent, even though nothing has changed in the share prices. Conversely, a weak euro can increase the value.”
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What matters is not whether an ETF is denominated in US dollars or euros, but rather in which currency the companies in the fund conduct their business. A global ETF with a high US share is inevitably heavily dependent on the weal and woe of the dollar, regardless of which fund currency is on paper.
