At StashAway, we build our General Investing and Goal-based portfolios using global ETFs that are denominated in either USD or GBP. This means that when you deposit funds into your StashAway account, your funds are converted from MYR to either USD or GBP to purchase the ETFs that make up your portfolio asset allocations.
You may have noticed that your StashAway portfolios can display your returns either in USD, GBP or MYR, and that the returns shown may be different in each currency. In this guide, we’ll explore how currency impacts your returns and how we use currencies to manage your portfolios’ risk exposure.
As your deposited funds are converted to a foreign currency, your portfolio is exposed to the fluctuations in the relative value between MYR and that foreign currency. Basically, your investments will be positively (or negatively) impacted when the USD, or GBP rises (or falls) against MYR, holding all other factors constant. This gain or loss on the value of the USD, or GBP against MYR is called currency impact.
On the performance page in your StashAway app, your portfolio return comprises dividends and capital gains when you toggle to USD, or GBP. On the other hand, when you toggle to MYR, your returns comprises dividends, capital gains, and the currency impact.
The currency impact is measured by the difference between the current exchange rate and the exchange rate at which you invested your funds. The table below shows how currency impact is measured in your MYR returns. Assume that you deposited RM10,000 on 1 January and another RM15,000 on 1 February at the prevailing exchange rates on those dates. The total amount invested in your portfolio is $6,150 USD at an average rate of RM4.065 per $1 USD.
Let’s assume that on 1 Mar, Ringgit depreciated against the USD so that 1 USD can buy RM4.20. If there are no changes to the returns on your investment, meaning there weren’t any dividends or capital gains, your investment of $6,150 USD is worth RM25,830 on March 1. In other words, you’ll have an RM830 (or 3.32%) gain because your investments in USD appreciated in value as the USD strengthened against MYR. This currency gain is included in the calculation of your return in MYR.
Though our portfolios are denominated in either USD or GBP, these portfolios are globally-diversified. This means your portfolios are invested in asset classes with exposure to various geographical markets including China, Asia ex-Japan, emerging markets, and European markets.
These global ETFs are made up of companies that operate in their respective region in their respective currencies. As such, your portfolios have indirect exposure to multiple currencies through these ETFs. For instance, if your portfolio has an allocation to a Japanese equities ETF, you gain exposure to the Japanese Yen as the companies in the ETF that derive their earnings in Japanese Yen.
Country-specific events, such as political upheaval, natural disaster, or an economic slowdown can negatively impact your investments in a particular country. By investing in asset classes in different geographic territories, you minimise the impact of such isolated and country-specific events on your portfolio.
In addition, each country has its own economic cycle and growth trends. If your investments are only concentrated in Malaysia, you may miss opportunities to gain returns from growth-oriented assets in other economies such as China and the US.
In essence, the exposure to multiple currencies through our global ETF selection is one of the ways in which StashAway diversifies your portfolio. This diversification allows you to capitalise on potential gains globally while keeping your risk level consistent.