RetireJapan

zeroshiki wrote: ↑Sat Oct 28, 2023 4:45 am Here's Japanese research on it. Investing in an index funds (or as OP loves using MSCI Kokusai, Developed - Japan) carries with it currency risk but as currency rates bounce up and down, the hedge costs tend to be a drag on the growth of the fund itself.

https://www.nli-research.co.jp/report/d ... 0?site=nli

Methinks this point from your link might be more relevant. We cannot be so uncharitable as to overlook evidence in OPs favor. However, I do not believe we were discussing a single lump sum investment.

MSCIコクサイは、米国株式を６割含むため、Ｓ＆Ｐ500と似た傾向になる。しかし、一括投資においては、為替ヘッジはやや有効であることが確認された。一括投資であれば、どちらでもよく、積立投資であれば、為替ヘッジ無でもよいだろう。

MSCI Kokusai includes 60% US stocks, so its trends are similar to the S&P 500. However, currency hedging was confirmed to be somewhat effective for lump-sum investments. If it's a lump-sum investment, either option is fine, and if it's a cumulative investment, you may not need currency hedging.

Tsumitate Wrestler wrote: ↑Sat Oct 28, 2023 7:13 am

zeroshiki wrote: ↑Sat Oct 28, 2023 4:45 am Here's Japanese research on it. Investing in an index funds (or as OP loves using MSCI Kokusai, Developed - Japan) carries with it currency risk but as currency rates bounce up and down, the hedge costs tend to be a drag on the growth of the fund itself.

https://www.nli-research.co.jp/report/d ... 0?site=nli

Methinks this point from your link might be more relevant. We cannot be so uncharitable as to overlook evidence in OPs favor. However, I do not believe we were discussing a single lump sum investment.

MSCIコクサイは、米国株式を６割含むため、Ｓ＆Ｐ500と似た傾向になる。しかし、一括投資においては、為替ヘッジはやや有効であることが確認された。一括投資であれば、どちらでもよく、積立投資であれば、為替ヘッジ無でもよいだろう。

MSCI Kokusai includes 60% US stocks, so its trends are similar to the S&P 500. However, currency hedging was confirmed to be somewhat effective for lump-sum investments. If it's a lump-sum investment, either option is fine, and if it's a cumulative investment, you may not need currency hedging.

Sure, but the marginal difference they're discussing there was over 10 years. Over 30 years, the difference grows bigger. The article doesn't comment specifically about Kokusai over 30 years but its thesis is that MSCI Kokusai follows S&P and S&P loses alot with hedge over 30 years so we can assume the 36% loss would follow more or less.

zeroshiki wrote: ↑Sat Oct 28, 2023 8:25 am

Tsumitate Wrestler wrote: ↑Sat Oct 28, 2023 7:13 am

zeroshiki wrote: ↑Sat Oct 28, 2023 4:45 am Here's Japanese research on it. Investing in an index funds (or as OP loves using MSCI Kokusai, Developed - Japan) carries with it currency risk but as currency rates bounce up and down, the hedge costs tend to be a drag on the growth of the fund itself.

https://www.nli-research.co.jp/report/d ... 0?site=nli

Methinks this point from your link might be more relevant. We cannot be so uncharitable as to overlook evidence in OPs favor. However, I do not believe we were discussing a single lump sum investment.

MSCIコクサイは、米国株式を６割含むため、Ｓ＆Ｐ500と似た傾向になる。しかし、一括投資においては、為替ヘッジはやや有効であることが確認された。一括投資であれば、どちらでもよく、積立投資であれば、為替ヘッジ無でもよいだろう。

MSCI Kokusai includes 60% US stocks, so its trends are similar to the S&P 500. However, currency hedging was confirmed to be somewhat effective for lump-sum investments. If it's a lump-sum investment, either option is fine, and if it's a cumulative investment, you may not need currency hedging.

Sure, but the marginal difference they're discussing there was over 10 years. Over 30 years, the difference grows bigger. The article doesn't comment specifically about Kokusai over 30 years but its thesis is that MSCI Kokusai follows S&P and S&P loses alot with hedge over 30 years so we can assume the 36% loss would follow more or less.

I think we agree on that point, I am just trying to be as balanced as possible.

The article clearly states that investing in a hedged product long-term is 凌遅刑 death by a1000 cuts.

Digression -> Historically with other currencies, there is a strong case for hedging foreign bonds. But as the JGBs have basically 0 yield, things work a bit differently here and we cannot so readily apply the usual rules of thumb. However, I guess low-inflation or Yield, we need to pick one. We cannot have our cake and eat it too.

Interesting comments from the 3 of you, thank you. I agree in general with all those conclusions. Yes, in the long term, if you decided to invest in diversified foreign equities being in Japan with JPY, and without considering a specific product, in general buying the cheapest unhedged all-world fund should be the standard advice. I really agree on that! And if you look at the title of this whole thread, I already assumed that strategy.

However, this current situation right now as we speak is pretty abnormal and extreme. Please, look at this JPY/USD chart for a few seconds. We are at this very moment at 30-year highs! So my whole idea is as follows: in this specific situation, until this extreme volatility resolves, for new purchases of MSCI-world type fund/ETF, and given that there's a very good hedged ETF as the one I showed, do you really find weird to hedge now?
I will insist on these previous premises also including your latest comments:
If the JPY/USD was in a historically more averaged position, I would choose the conventional unhedged low-cost fund. However, at this point, I started to think about hedging some time ago, and I surveyed the market looking for some adequate product. I only found one, which is the one I shared (2513), with only 0.2% fee and with a track record of about 6 years tracking the MSCI-kokusai index in USD really accurately, with small deviations below and above the original index of up to 5% (this is a short-term maximum value and NOT accumulated, in the long term the deviation is very small and averaged to zero). Then I recently decided to start buying this ETF with a strategy of keeping it while this situation persists. Nobody knows what will happen with JPY/USD, but during some sitill-undetermined time I will feel way more relief knowing that the JPY/USD can behave wildly (as in these 3 past years) and I will not feel it very much in this investment, at a very reasonable cost. This is risk management, and I can accept even a few porcentual points of opportunity cost in order to avoid tens of porcentual points of potential loss, which is not a crazy scenario at this moment.

So what's your play when the JPY strengthens as you're so convinced? Sell this fund and buy unhedged? This is still just market timing but its in a halloween costume.

A wise old lady once told me it to confuse the bottom of a chart with support nor the top of a chart with resistance.

The USDJPY chart tells us what has happened. It doesn’t offer insights what will happen in the future.

Personally I thought the yen wouldn’t go through 130 or 140. I was wrong. I don’t really have much confidence in my, yours or anyone else’s forecasting ability in foreign exchange markets.

What edge or expert ability do you think you have to be able to predict a market with trillions of yen worth of transactions every day?

Deep Blue wrote: ↑Sat Oct 28, 2023 10:51 pm A wise old lady once told me it to confuse the bottom of a chart with support nor the top of a chart with resistance.

The USDJPY chart tells us what has happened. It doesn’t offer insights what will happen in the future.

Personally I thought the yen wouldn’t go through 130 or 140. I was wrong. I don’t really have much confidence in my, yours or anyone else’s forecasting ability in foreign exchange markets.

What edge or expert ability do you think you have to be able to predict a market with trillions of yen worth of transactions every day?

Yes, we don't know what will happen, but with this extreme volatility in which we are now, if you keep buying USD with your JPY, you are taking a specific currency risk, like or not, which could materialize in tens of porcentual points of potential loss. If you are willing to take it, it's perfectly fine if that's an educated choice. My choice is not to take that risk. I wish you luck.

You are simply paying to take a different risk. I chose not to speculate like this for something I have no insight on.

Speculation/gambling is all fine - I don’t have a problem with it, I just choose not to do it personally. If you have strong view the yen will strengthen, by all means pay some money to a fund manager to back that view.

zeroshiki wrote: ↑Sat Oct 28, 2023 4:31 pm So what's your play when the JPY strengthens as you're so convinced? Sell this fund and buy unhedged? This is still just market timing but its in a halloween costume.

Yes, that's my plan, as I explained. Very similar as with my stock investments. I buy index funds more or less periodically, but not automatically, I prefer to buy more when the price is cheaper and buy less when the price is expensive. You can call it "market timing" and I guess that will make you automatically cathegorize it as "bad", but that simple and obvious strategy has given me huge benefit over the long term compared to blind periodical purchases (I actually compared both). In March 2020 with stocks, I felt the same thing as now with JPY/USD, and of course I increased my purchases very much, which materialized in big gains. And with currency this time it's a very conservative plan because hedging supose a very low cost for avoiding a potentially high loss (and maybe a potentially high gain, although I don't really see that happening for a long time), but I don't want this extra huge volatility. I want the stock performance to dominate my investment, not the currency exchange. It's as simple as that.

Deep Blue wrote: ↑Sun Oct 29, 2023 2:36 am You are simply paying to take a different risk. I chose not to speculate like this for something I have no insight on.

Speculation/gambling is all fine - I don’t have a problem with it, I just choose not to do it personally. If you have strong view the yen will strengthen, by all means pay some money to a fund manager to back that view.

We all speculate here, you cannot avoid that. And I think the risky speculation now is way more on the side of surfing a extremely volatile currency exchange rather than avoiding tens of porcentual points of potential loss at the cost of very few porcentual points in the worst case for a limited time when we are in a 30-year highs.