Can someone explain currency risk/impact switching between UK shares to US shares?

[tlf67482]

Possibly a bit off topic but as it is regarding ETFs....

I am currently massively invested directly in UK based shares. I am gradually trying to migrate to a more worldwide portfolio by moving to ETFs like Vanguard VUSA.

Would appreciate any comments on what risk this would expose me too and whether there are any strategies I could be following to achieve my goal as safe as possible?

I am also trying to get my head around whether a batch of VUSA I bought a few weeks ago is showing a profit due to share price movements and/or currency movements so if anyone has any "tricks" to try to get my brain into gear that would be useful also.

I have managed to really confuse myself!

Thanks

[mc2fool]

I am currently massively invested directly in UK based shares. I am gradually trying to migrate to a more worldwide portfolio by moving to ETFs like Vanguard VUSA.

Would appreciate any comments on what risk this would expose me too and whether there are any strategies I could be following to achieve my goal as safe as possible?

Well, clearly with something like VUSA you are more exposed to US risks: US market risk, US$ exchange rate risk, US politics risk, etc. But it is a matter of degree rather than any absolute. Consider, the FTSE 100 companies get some 70% of their earnings from abroad, so with your UK based shares you were already exposed to exchange rate risk (note how the FTSE 100 goes up when the £ goes down), including, amongst other currencies, to the US$.

And it's not going to be one way: members of the S&P 500 will also get some of their earnings from outside the US, so the relative risks/benefits is rather difficult to quantify. And, of course, as they say, when the US sneezes the rest of the world gets a cold, and I'd say Trump is a man who has no problem with blowing his nose.

I am also trying to get my head around whether a batch of VUSA I bought a few weeks ago is showing a profit due to share price movements and/or currency movements so if anyone has any "tricks" to try to get my brain into gear that would be useful also.

That's easier! Vanguard's VUSA Price & Performance page gives performance figures and historical NAV data in US$. So simple look up the US$ NAV for the start and end dates you want and compare the gain/loss in that with that in the GBP market values across the same dates.

[Hariseldon58]

If I could add that the diversification away from the UK if you are largely exposed to the UK is generally considered a good idea.

The present situation is rather exceptional, the outlook for the uk is .....uncertain. I mistakenly tried some market timing around this time last year and moved a very internationally diversified portfolio to a heavy UK concentration on the basis that UK assets had taken a beating and a resolution of Brexit by March 31st this year would remove uncertainty and allow a profitable exit.

That clearly didn’t work ( note to self, market timing is not generally a good idea!)

I was fortunate to exit those positions at around the same price levels in April/May.

The situation now, I suspect, could have a very binary outcome and I have no idea which way it will go.

My only suggestion is to decide on a long term “lazy” portfolio mix, that should embrace most conditions and slowly move a portfolio in that direction, given that we only find out in hindsight whether we were right, from a behavioural standpoint and to minimise regret, a slow move to a long term allocation will be neither right nor wrong but easier to tolerate.