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Blacrock International ETFs

Discussion in 'Exchange Traded Funds (ETF)' started by HHH, 15th Jul, 2018.

  1. HHH

    HHH Well-Known Member

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    Hello everyone

    I am really keen to invest in an ETF or Index fund tracking the US S&P 500.

    I have noticed that Blackrock now have Australian domiciled iShares ETF. Does this mean the currency risk aspects are minimised somewhat or it won't make much difference?

    I understand how the value of the $AUD could affect returns, but if we are now buying and selling units in AUD, and if this index does indeed track that index closely, I am struggling to see how the currency risk comes into play and how it is any different to buying an ETF tracking an ASX index. Is the problem that the ETF itself will find it harder to track the index closely due to currency fluctuations? and the currency risk isn't so much with me buy and selling?
     
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  2. Hodor

    Hodor Well-Known Member

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    Where it is domiciled has no impact on currency risk. It simplifies tax.

    You are buying companies using AUD, yet the underlying assets are all in USD. You get the index return, after currency variation and fees/costs.
     
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  3. twisted strategies

    twisted strategies Well-Known Member

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    currency fluctuations will still be in play

    ( but somebody like me would prefer that to currency hedged products )

    the main difference is the paperwork regarding US tax liabilities .

    the original dividends of the underlying shares are still in that international currency ( which later will be converted into Australian dollars )

    traders MIGHT hate the reduced liquidity and increased reliance on 'market makers '
     
  4. twisted strategies

    twisted strategies Well-Known Member

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  5. HHH

    HHH Well-Known Member

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    thanks for the quick replies!

    I am looking at DCA funds for my kids future into one of these funds. Since I won't be selling/trading anytime within the next 15 years, Is the currency fluctuations that big of a risk? or should I just stick with a local AUD index fund, say the ASX 300 for example?

    does anyone here invest in US index funds and have any experiences to share?
     
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  6. HHH

    HHH Well-Known Member

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    I just read that article, thank you Twisted Strategies.
    Can you help me understand more about that reduced tax rate of 15% on these funds?

    How does that come into play? and wouldn't that outweigh any negative currency fluctuations ?
     
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  7. twisted strategies

    twisted strategies Well-Known Member

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    currency fluctuations can be good or bad

    there will be times when being in Australian dollars is ( in this case when the $AUS is low ) good and the reverse , in theory ( and allowing for the possibility the Chinese or BRICS currency becomes the new benchmark ) the $US should always be stronger ( in the long term ) than the local currency .

    this particularly matters when you are relying on this income to pay your bills ( you MIGHT end up needing a few extra dollars to pay your mortgage or rates in some payment periods )

    the ( 15%) tax is paid to the US government if a US domiciled fund but it should have reduced your Australian tax liability ..

    PS the Australian government still wants a share of the pie ( even if US domiciled )
    it just gets less because you have paid some to the US

    if Australian domiciled you will only be taxed by the Australian government but the chances are there will not be a lot of difference just a little less paperwork

    but no i do not hold foreign domiciled ETFs , i DO hold some international focused shares ( mainly NZ ) but they are ASX listed .





    if you hold ASX listed BHP your will get a rough idea how currency changes affect you ( BHP divs are calculated in $US and THEN converted to the required currency ( whether it is for the UK , South Africa , Australia or NZ )

    if investing for the children check if there is a DRP scheme and if it is suitable for your aims

    Dividend Reinvestment Plan - DRIP
     
  8. HHH

    HHH Well-Known Member

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    Thank you!

    One last question please. So the currency risk only really comes into play in regards to dividends or if I’m selling some or all units.

    If we are just constantly increasing or adding to the fund, then the currency risk doesn’t really come into it? The idea being to make sure the AUD is relatively low around the time if we ever need to cash in?
     
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  9. Hodor

    Hodor Well-Known Member

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    Currency is always in play, you will get more units when the AUD is high.
     
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