Do stocks have "base" currency?

[ugottabelieve]

Hello I posted a question on r/personalfinace where I asked why are returns expressed in EUR lower then when they are expressed in USD. Someone replied that it's because of the exchange rate between these two but that stocks don't have "base" currency, they are worth what they are worth. This would mean that the "stronger" currency will always yield lower returns.

However when I look at [this](https://www.youtube.com/watch?v=AEuCl2FmJ-Y&t=600s&ab_channel=ThePlainBage) video by Plain Bagel, 4 minutes in He presents the case where there are "US Stocks" and he is trying to "match" the returns of those stocks (if CAD gets stronger compared to USD). This would mean that there IS a base currency and that we are trying to "match" the returns of that inherent currency.

I am confused now.

 

[resjudicata]

@ugottabelieve Keep in mind that a stock can be listed on different exchanges. Take this bank for example. It's listed on US Markets and on EU market. Here is the EU listing: hyperlink

Generally US Stocks refers to stocks listed in USD (or you can just say that it's listed in the United States). If it's listed on a EU market, it's a EU stock.

Let's say Stock B is 21 EUR. EURUSD = 1.21. This means that stock B is worth 25,41 USD.

If stock B goes to 25 EUR, you have 19% profit in EUR. This equals to 30,25 USD, which also means you have 19% profit.

BUT

If EURUSD changes to 1.5, you're profit in USD will be 47%. While the EUR quote remains the same. In USD you'll have a higher return while in EUR not. It also works the other way around.

 

[resjudicata]

To answer you question, they don't have a base currency. It's just based on the exchange they wanted to be listed on. NYSE is USD, Toronto is CAD, etc.

 

[ugottabelieve]

@resjudicata I kind of understand, but what I'm confused about is the hedging part, if you looked at the video. There he is trying to match the returns that are related to USD. How does one determine which currency's returns are being matched. That seems to me to be 'base' currency, the one whose returns we are trying to match or am I wrong? If he bought in USD he wouldn't need to 'hedge'.

This is what I'm trying to understand, what does EUR Hedged even mean then when we are looking at it from the perspective of Bond Fund for example.

 

[resjudicata]

@ugottabelieve You're kind if right. The is a base curreny when you you're only talking about comparing currencies. Example USDCAD = 1.28. This means: for 1 USD (base curreny) you get 1.28 CAD.

However it can be the other way around. CADUSD 1 = 0.78. Here you can see that CAD is the base curreny.

I wouldn't worry about this unless you're an CAD and USD account, and frequently trade in both currencies.

 

[ugottabelieve]

@resjudicata Yeah I know, but I'm trying to understand when we hedge, which currency returns are we trying to "match"? How do we determine that? If you buy Vanguard FTSE All World for EUR, are we trying to match the returns of the USD counterpart when we hedge. It can also be the other way around. I hope I explained it in a clear fashion.

 

[resjudicata]

@ugottabelieve No there's not a currency you'd try to match. The guy in the video picked USD just for the sake of giving an example.

 

[ugottabelieve]

@resjudicata I think I understood it now. The problem was that I forgot the fact that in an ETF there could be stocks that are from multiple countries. For example there is an ETF in EU and its price is in EU, however that ETF has stocks that are from EU and US. If the US stocks go up 10% and EU gets stronger you are going to gain less. So EUR Hedged limits that drop in value, and allows us to gain the same amount as someone who invested in US. Am I right?

 

[resjudicata]

@ugottabelieve Not fully. It doen't matter what the ETF is tracking. The ETF itself either drops or rises in value. Don't look at the underlying stocks/currencies/etc.

It's the job of the issuer to worry about the underlying (e.g. USD rise 10%) value. It's your job to keep track of it, and keep/sell it when you want.

 

[anupama]

@ugottabelieve Assume you have an US company operating in the US mostly appealing to US investors trading in US dollars. Now you convert your EUR to USD tobuy this company. unfortunately after that EUR/USD doubles. since the company still trades for the same USD value your value in EUR would have halfed. Not so with an EUR hedged ETF. So yes the EUR hedged ETF must assume a base currency for each underlying for the hedging part. But because in the long term currencies trade both ways and do not follow one direction, you pay a premium for the hedge. Also for companies that operate world wide but are considered USD companies for the hedge, the whole
concept of currency hedged does not really make a lot of sense. This is how I understand it at least.

 

[ugottabelieve]

@anupama I mainly am referring to Bond Funds such as: Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating.

I am trying to understand the EUR Hedged part here. I will try to explain how I understand it and if I'm wrong correct me: This fund is bought in EUR. You can buy it for EUR, but this fund has bonds from large amount of countries. This causes the problem where you bought it for EUR but it is investing in bonds that cost them USD for example. Now there is a chance that it doesn't 'match' the returns of USD bonds if the EUR becomes stronger then USD, so they hedge to offset this loss/gain.

Am I right? In this case the currency whose returns they are trying to match is the currency of the bond that they are investing in. So there are bonds listed in EUR (no risk there), USD bonds (hedging required) etc...

 

[anupama]

@ugottabelieve Yes thats how I understand it too, for each bond they buy not denominated in EUR they will open a hedge position, so they get profits from their hedge if the EUR increases in value compared to the bonds currency. For bonds it makes more sense than for stocks, because its inherent currency.

 

[richardrhys]

@resjudicata Im sorry but im too retarded to understand this.

After EURUSD changed to 1.5 does that mean that we actually did profit less or we profited just as much but its just not displayed as such?

I have this problem with many of the swiss penaion fonds i use in my retirement plan. It shows me that the MSCI World in CHF went up 40% over last 5 years. Meanwhile MSCI World in USD went up like 65% over thr same 5 years. Did i make less money with the CHF or is it just displayed as less because CHF is the more stable, stronger currency?

Does it also matter wath exchange i use? I buy MSCI World on Xetra in Euro, because the same ETF in the swiss CHF Exchange has a volume of like 50 and a huge spread, while on Xetra it has a volume of 50k and small spread. The ETF himself is in USD though. So i buy with a USD World ETF in a Euro Exchange with my CHF...

 

[resjudicata]

@richardrhys First of all, if an ETF is listed on different exchanges, it's not the same ETF. The value usually remains the same (Why should I buy in USD when I can get it cheaper in CHF?). This logic makes it remains (almost) the same. It could be that you make less profit in CHF tho.

You should only worry about currencies when you're transferring it from CHF to USD, or the other way around.

 

[richardrhys]

@resjudicata But what about your example with the 47%? So did we make just as much profit as with USD even though it shows less?

Does a world CHF ETF that shows 40% profit with exactly the same positions like the USD ETF that made 70% profit still make exactly the same profit?

 

[resjudicata]

@richardrhys The profit is not the same due to this one thing: you have to look at the EURUSD or USDEUR at the moment you bought the ETF. It will not be the same as now.

You can say the USD and EUR etf have the same value but not the same profit.

 

[richardrhys]

@resjudicata Which one do i buy then?