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.
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.
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.