Japan Mutual Funds with US Stocks - Exchange Rate exposure

[Moneymatters]

Hi,
I'm still struggling to wrap my head around this.
For a Yen based Japan Mutual Fund of US Stocks that is NOT hedged.

The fund holds USD Assets but we buy/sell the fund in Yen.

Therefore, is the Japan Mutual Fund's daily yen value adjusted with the latest exchange rate between Yen and USD value of the underlying assets?

Or is this happening a different way or at a different timing.

[Kanto]

Customers abroad purchasing mutual funds in foreign currency is incredibly common.

Yes, there is currency risk, and hedging can reduce risk and the cost of diminishing returns. When it comes to Yen-> USD I do not think most investors would consider it a huge currency risk.

Mutual funds are designed to be held for long the long term and are only traded once daily, making them a little less volatile. Small fluctuations should not bother the long term investor.

Also,

Indeed, most international funds don't hedge their exposure to foreign currencies, reasoning that investors buy their shares in part to gain some of that exposure.

https://www.wsj.com/articles/SB10001424 ... 3504465292

[adamu]

is the Japan Mutual Fund's daily yen value adjusted with the latest exchange rate between Yen and USD value of the underlying assets?

That's a good question. I don't know the answer, but that sounds sensible. Even if the stock value in USD didn't change at all, but the exchange rate did, the value of the fund in yen would change due to the exchange rate exposure.

[fools_gold]

Hi,
I'm still struggling to wrap my head around this.
For a Yen based Japan Mutual Fund of US Stocks that is NOT hedged.

The fund holds USD Assets but we buy/sell the fund in Yen.

Therefore, is the Japan Mutual Fund's daily yen value adjusted with the latest exchange rate between Yen and USD value of the underlying assets?

Or is this happening a different way or at a different timing.

I just found this which explains how the daily NAV is calculated. For stocks traded on foreign markets the price at the previous day's close is used and converted to yen using the exchange rate at 10 am. This is for NikkoAM but I assume other asset management companies do things similarly.

Anyway, I don't worry about daily fluctuations so much as they can work in your favour as well as against you. However, I'm a bit more concerned about the possibility of a strong yen during retirement. For example, between 2007 and 2012 the yen appreciated by 30%. It went back down again thanks to Abenomics, but it took another 3 years.

[Kanto]

Hi,
I'm still struggling to wrap my head around this.
For a Yen based Japan Mutual Fund of US Stocks that is NOT hedged.

The fund holds USD Assets but we buy/sell the fund in Yen.

Therefore, is the Japan Mutual Fund's daily yen value adjusted with the latest exchange rate between Yen and USD value of the underlying assets?

Or is this happening a different way or at a different timing.

I just found this which explains how the daily NAV is calculated. For stocks traded on foreign markets the price at the previous day's close is used and converted to yen using the exchange rate at 10 am. This is for NikkoAM but I assume other asset management companies do things similarly.

Anyway, I don't worry about daily fluctuations so much as they can work in your favour as well as against you. However, I'm a bit more concerned about the possibility of a strong yen during retirement. For example, between 2007 and 2012 the yen appreciated by 30%. It went back down again thanks to Abenomics, but it took another 3 years.

I would agree, it is not a big issue. For those of us with most of our saving in YEN a bit of US currency exposure is fine.

When it comes to hedged bond funds, the data seems to suggest it is not worthwhile. (For those located in Japan). I would assume the same for hedged stock funds. The reduced volatility is not worth the reduced yield.

[Moneymatters]

Hi,
I'm still struggling to wrap my head around this.
For a Yen based Japan Mutual Fund of US Stocks that is NOT hedged.

The fund holds USD Assets but we buy/sell the fund in Yen.

Therefore, is the Japan Mutual Fund's daily yen value adjusted with the latest exchange rate between Yen and USD value of the underlying assets?

Or is this happening a different way or at a different timing.

I just found this which explains how the daily NAV is calculated. For stocks traded on foreign markets the price at the previous day's close is used and converted to yen using the exchange rate at 10 am. This is for NikkoAM but I assume other asset management companies do things similarly.

Anyway, I don't worry about daily fluctuations so much as they can work in your favour as well as against you. However, I'm a bit more concerned about the possibility of a strong yen during retirement. For example, between 2007 and 2012 the yen appreciated by 30%. It went back down again thanks to Abenomics, but it took another 3 years.

Thanks, and others, for replying.
Good point about potential impact of strong yen in retirement.