Manage Currency Exposure of your Portfolio

Yesterday, Singapore dollar hit new all-time high against USD at 1.288. Today, Fed’s Open Market Committee (FOMC) will probably announce the Quantitative Easing II, which may further weaken the greenback.

So what is the impact to us? As a Singapore investor, you would like to receive investment return in Singapore Dollar.

Take a look at the chart below for Templeton Global Bond, which is 5-star MorningStar fund. Both are invested in the same underlying assets, but SGD hedged fund outperform the un-hedged fund by more than 4% in 6 months time. The weakening of USD for the past 6 months is the key contributor.

Franklin Templeton Global Bond SGD vs SGD Hedged

If you look at the currency breakdown in Sep fund factsheet, there is 44% USD exposure as most of the bonds globally are valued in USD. As a result, even if the bond has performed generally fine, investors are short changed when the return comes back to Singapore.

Frankin Temlepton Global Bond Currency Exposure

This type of risk was not obviously and the currency move was not so drastic historically. However, amongst the currency war environment, investors should keep close look at the FOMC meeting result and make adjustment to their portfolio timely.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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