More investors are looking to international markets and exchange traded funds as a way to diversify away from potentially overvalued U.S. equities. However, potential traders should keep in mind the risks associated with international investments, notably foreign exchange or forex risks.
ETF Trends publisher Tom Lydon spoke with Abby Woodham, ETF Strategist for Deutsche Asset Management, at the 2017 Morningstar Investment Conference in Chicago April 26-28 to talk how currencies influence an international equity position.
“It’s certainly something that’s come to the fore of investor’s mindset given the strength of what we’ve seen in the dollar,” Woodham said.
When exposed to international equities, investors should keep in mind the foreign exchange fluctuations between the U.S. dollar and foreign currencies. If foreign currencies weaken or the U.S. dollar strengthens, international equity returns are lower when converted back into USD-denominated returns.