Re: Does it make sense to continue with the same strategy with this JPY/USD rate?
Posted: Mon Oct 30, 2023 10:21 am
I agree that what Alberto wrote and Deep Blue quoted is not nonsense at all. The long term trend of an equity index is up, and the long-term trend of a currency pair is unknown. Seems true to me.
Based on this, it's not unreasonable to desire a fund that invests in foreign equities but avoids the currency movements, if such a thing exists. There are hedged ETFs available in Japan that manage this to a certain extent, but they aren't perfect as others have mentioned. For instance, they have hidden hedging costs that drag on performance, and they aren't tax efficient in NISA due to distributed dividends.
I don't think it makes much sense to hold one of these funds for a long period (e.g. 30 years), and I think Alberto agrees with this. But in the short term it does make sense IF you have an opinion about the direction of USD.JPY. This then raises additional problems of when to sell the hedged fund and replace it with an unhedged one. After a certain time? When it hits a certain rate? But if you're prepared to accept these problems and costs and believe that they are better than taking a potentially large loss due to a falling USD.JPY, then... why not? Go for it, I say, and good luck.
I don't think there's much else that can be said on the matter. It's been an interesting discussion and I've learnt some things about hedged funds, so thank you all. And I think it's perfectly OK for Alberto to have the last word as he's the one who started it
Based on this, it's not unreasonable to desire a fund that invests in foreign equities but avoids the currency movements, if such a thing exists. There are hedged ETFs available in Japan that manage this to a certain extent, but they aren't perfect as others have mentioned. For instance, they have hidden hedging costs that drag on performance, and they aren't tax efficient in NISA due to distributed dividends.
I don't think it makes much sense to hold one of these funds for a long period (e.g. 30 years), and I think Alberto agrees with this. But in the short term it does make sense IF you have an opinion about the direction of USD.JPY. This then raises additional problems of when to sell the hedged fund and replace it with an unhedged one. After a certain time? When it hits a certain rate? But if you're prepared to accept these problems and costs and believe that they are better than taking a potentially large loss due to a falling USD.JPY, then... why not? Go for it, I say, and good luck.
I don't think there's much else that can be said on the matter. It's been an interesting discussion and I've learnt some things about hedged funds, so thank you all. And I think it's perfectly OK for Alberto to have the last word as he's the one who started it