EU citizen holding strong USD in cash, better to invest directly in US Stocks or convert to EUR and invest in S&P 500 UCITS ETFs (FX hedged or not)

[glennheath]

Hi!

I'm an EU citizen/Italian holding USD in cash and want to invest in the US markets. I'm not sure which of these options work better in order not to lose on potential future EURUSD hike (and losing value on the underlying asset).

Opt 1: Buy US Stocks and replicate some sort of S&P 500 position via USD brokers (e.g. IBKR)

(edit, option I picked finally) Opt 1a: Buy UCITS ETFs on S&P denominated in USD (e.g. VWRA) via USD brokers (e.g. IBKR)

Opt 2: Convert USD to EUR and buy S&P 500 UCITS ETF (via my broker Scalable Capital)

Opt 3: Convert USD to EUR and buy S&P 500 TIPS (FX hedged) UCITS ETF (via my broker Scalable Capital)

Thanks!

 

[kaytiedid]

@glennheath Hi.

If you have USD in cash and also can have a broker with USD fiat, why don’t you buy the UCITS ETFs in an exchange that are listed in USD?

Example: VWRA.L and VUAA.L (London exchange, USD listings).

 

[glennheath]

@kaytiedid Cool, thanks for the info! I was looking into IBKR as a multi-currency broker (and Scalable Capital as the EUR one) so could be an option

 

[inkarpathos]

@glennheath Convert if you are fan of Lagarde.

Stick to USD if you are fan of Powell.

 

[skrause947]

@inkarpathos Guess I'll just burn the money

 

[njay]

@glennheath Option 2 is the best imo

Option 1 would be expensive and time consuming, for no real advantage, option 3 includes a currency hedged ETF, which I am not a fan of because of very high costs for no real benefits (currency edging will work against you 50% of the times, and in your favour the other 50%, so on average they are completely useless)

Also, the fact that your s&p 500 ETF is in euro really doesn't matter, what matter is the underlying asset currency, which in your case it's still dollars...

 

[glennheath]

@njay Why doesn't it matter that the underlying currency is in USD and you are buying in EUR? I mean you are buying USD assets with a weak EUR, once it goes back to historic levels the e.g. SPX ETF will have lost value

 

[njay]

@glennheath It doesn't matter that the base currency of the fund is in Euros, what matter is what currency are those money right now. If you have a salary in Euros, then yes you are buying USD assets with a weak euros, but if the money is already in USD, you are converting USD to euros to buy a USD asset, so the conversion is just irrelevant because you are converting first USD to euros, and then Euros to USD, so the two conversion cancel out and the conversion rate won't matter

Also, be careful with your ancoring bias... Just because euro is historically low compared to USD it doesn't mean eventually it will go back to where it was.. it might very well remail weak or even become more weak

 

[glennheath]

@njay Thanks for the explanation, I get the double conversion to be neutral overall, just wanted to find ways not to convert twice every time.
And also true about anchoring that EUR should be stronger historically!

 

[evietheturtle]

@glennheath A stock represents a "physical" part of some company... not a currency.

It's like buying an ingot of gold. It doesn't matter if you bought it with EUR or USD, in the end you own a piece of metal.

 

[aegisheart]

@glennheath why buy stocks, just buy SPY etf and be done

 

[glennheath]

@aegisheart Seems that EU citizens can't buy US ETFs (only their UCITS counterparts), do you have any idea how to work around it?

 

[aegisheart]

@glennheath You have a few ways of acquiring SPY.

I didn’t look extensively into CSPX but that could definitely be an option as it’s denominated in USD and tracks the SPX index.

Also you could consider getting elective professional exemption by the broker to buy US listed ETFs but it depends on your account size. https://www.expatfinance.us/general/us-etfs-in-europe

Also, you could acquire SPY through options by buying in the money puts and exercising or getting it assigned upon the expiration (in lots of 100 shares)

You could also buy deep in the money SPY LEAP calls that are close to 1 delta as possible as it means 1 to 1 exposure to the underlying….

 

[glennheath]

@aegisheart Thanks a lot, I saw the website and the options, but they are all time consuming to set up. And I don't want to open a margin account for options. So I guess the UCITS etfs in USD from Vanguard might make the trick

 

[evietheturtle]

@glennheath You can still buy good ETFS in Europe.

E.g.

• iShares Core S&P 500 UCITS ETF
• Vanguard FTSE All-World UCITS ETF
• and others

 

[glennheath]

@evietheturtle Exactly I just found out that there are usd denominated UCITS etfs on world/S&p, that solves the problem I guess.

 

[evietheturtle]

@glennheath Only option 3 makes a difference, but not necessarily a good one because hedging costs money and why would you buy Bonds anyway...

The main question for you is how you get the cash into a bank account, so you can actually use it... Is suspect whatever you do will have high fees (opening a special USD account or converting them to EUR at your local bank).

 

[glennheath]

@evietheturtle Thanks! Sending USD via wire from Wise is not so expensive, so I'm trying not to lose on FX, just the wire costs

 

[evietheturtle]

@glennheath But you said that you have that money in cash? Like physical paper... Or was that a translation error?

 

[glennheath]

@evietheturtle Translation error maybe, USD is in bank/wise