That would be interesting to actually know.
Indeed, when my IB account was in CHF and I was buying US stock or any other instrument - IB was creating a temporarily CHF.USD position to cover the USD price. Then when selling - the sold amount was added to USD, not CHF.
So you see, that in those cases the currency exposure can add significantly to your profit - lost totals.
Could someone elaborate?
Agreed. Looks like people are losing trust on US dollar and US economy.
This would be a disaster and not sure if this is driven by fear of Trump going after foreign assets and foreigners selling?
Is there a way to know who is selling ?
It will be disastrous on US economy.
For any other economy, especially for EU - this might be literal gift from heaven (well.. - in this case from idiocrasy)
I have the feeling that Europe today is where US was when Marshall plan was rolling - 85 years ago.
If the US loses its place, what will happen to VT? They should slowly rebalance and maybe some companies will relocate elsewhere, but will VT worth survive somehow? I suspect money get shifted elsewhere, but not all that money really exists and might get destroyed with the US economy.
Unless thereâs financial borders being erected all over, not much would change, itâs still a market cap weighted global index.
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Letâs doomsday scenario a bit:
Do you (or anyone) knows whatâs happening in the scenario where US (or any other) stocks become illiquid (like Russia, for instance) to non-US investors/funds? Do the funds (any funds, US, IE, LU, NLâŠwhatever domicile) basically sell at market value and return you the money?
What I read happened with Russia was the Russian stock prices could no longer be determined as they were not traded anywhere, so funds returned what they could liquidate to investors, but often a small fraction of even the last traded price (~10%, so 90% loss for US stocks, and ~60% NAV loss for all-world ETFs?).
The weight will change, but the value? instead of being 104 or whatever it is, it might go to 50 from what I know. Itâs not that the money magically moves from Apple to Mobilezone.
And am I correct in assuming that:
- if one remains willing to maintain exposure to the world economy, not a specific region; and
- notwithstanding tax implications;
there is nothing to be gained in shifting from VT to a comparable UCITS fund (or mix of funds) OR moving to an EUR or CHF denominated fund? At the end of the day the main holdings of all total world funds remain US companies.
Only alternative would be a CHF or EUR hedged fund, but if I understand correctly the price of hedging eats away at profits and defies the purpose.
ma0 - you are asking impossible question. No one knows what it will be tomorrow. If you have VT in your portfolio - then you also agree to carry a risk that having such asset may impact your overall financial health.
Murphyâs Law mate.
You may not be prepared for it, but I tell you this - itâs fully prepared for you.
Kind of like people saying - âI am not really interested in politicsâ - which immediately makes politics interested in them, because they are easy target.
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If you own WEBG, 64% is exposed to US and if US decides to freeze US assets then 64% would be in scope
If you own VT, 64% is exposed to US companies but 100% is exposed to freezing of US assets because VT is US domicile fund (i.e US asset)
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From the FT: âInvestors and analysts pointed to the misfiring of popular trades that aim to exploit differences in price between Treasuries and associated futures contracts, known as the âbasis tradeâ, or between Treasuries and interest rate swaps. As hedge funds cut back on risk and exit those trades, they have been selling Treasuries, piling pressure on markets.â
The basis trade is usually leveraged between 50x to 100x times. Basis trade also unwound in march 2020.
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It would be different for different domiciles
If you assume US market is illiquid, then its not just stocks, also ETFs. So everything will be illiquid - GOOG, BRK, VT, VOO etc
Now letâs say you own non US ETF like VWRL. In this case, the issue VWRL will have is that they cannot buy-sell underlying stocks in US. This means they cannot redeem or create new units. In this case, VWRL can only be traded in secondary market at the price which market participants decide to assign to it.
Market value of VWRL = weighted Market value of Foreign stocks + discounted value for US stocks (discount may range from 0% to 100%)
Yep, thatâs what I thought too, thanks!
So at least 1 good reason to move to non-US domiciled fund in this scenario (again, disregarding tax implications).
Has anybody considered switching from VT to VWRL/WEBG for this reason?
It still doesnât answer your question of exposure to USD. Only to exposure to US law.
Which, could be argued, is an inevitable and necessary risk that one must bear when investing in a total market fund, which by definition includes the US.
If you assume US market is illiquid, then its not just stocks, also ETFs. So everything will be illiquid - GOOG, BRK, VT, VOO etc
That would be a big plus for UCITS vs US funds, no?
Not for this reason , but because of US estate tax jurisdiction, I decided to move away from US ETFs (VT, VTI, VXUS) to UCITS ETFs (WEBG, SPDR ACWI, WRDUSY+XMME etc)
From being primarily 100% in US ETFs, now I have majority of my assets in UCITS range
I am fully aware I would lose about 0.1% due to WHT on underlying US dividends. But itâs alright.
I never knew this new drama will unfold but kind of happy that I have reduced my exposure over time. Maybe it doesnât mean anything but who knows
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Youâre talking about the exodus to Mars scenario?
Sorry, couldnât resist, Iâll show myself out.
Slightly more earnest: when the US stocks or bonds become illiquid ... well, I'll open a bottle of champagne ... not to celebrate, though ... just to say goodbye to the world.
(Iâm afraid, Prosecco is the only thing weâve got in stock in our fridge)
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Actually, some of us are already halfway there.
Its just that your and my perception of time, and definition of now - are different 
For me now was approximately 6 months ago.
Indeed. But Iâm sensing that there is no good answer, apart from a hedged fund, which is still too expensive.
So, if:
(a) - the assumptions behind an AA which includes total world funds like VT or VWRL remains valid; *
(b) - exposure to USD in total world funds cannot be reduced, except for very expensive hedged funds;
(c) - US becomes a risk country from a foreign investorâs perspective, which was not the case before;
are true, it seems to me there are - today and likely in the coming months - more advantages from purchasing UCITS than US funds.
What am I missing?
*It could as well be argued that the current situation might justify shifting an entire AA away from US stocks, but I guess itâs a different argument.
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