Exchange traded funds that focus on foreign countries can affected by currency movements as well as the direction of stock markets. Currency fluctuations against the U.S. dollar are one factor that can have a big impact on the overall investment return.
With ETFs, investors can get exposure to international regions or individual countries.
“Going global in a portfolio has never been easier,” Aaron Levitt for Investopedia reports. “However, as investors have plowed some big dollar amounts into these international equity funds, they might not realize just how their returns can be influenced by how foreign currencies perform against the U.S. dollar. Rising and falling, pounds, euros, ringgits and rupees have a huge effect on whether or not investors will see strong returns.”
There are two parts to the total return of a foreign investment. One is based on how the stock performs in the local currency and another is based on how the currency is fluctuating against the U.S. dollar. Investors that put money into a foreign country ETF are indirectly currency trading. [International ETFs Minus Currency Risk]