Understanding Currency Risk
This is a great article from Morningstar about “Understanding Currency Risk”. In my reviews with clients I am constantly discussing the currency risk exposure we have in some of our investments. Namely, the Capital World Bond Fund from American Funds. However, as this article points out, the same currency risk can be seen in other securities as well, including stock funds.
So, while the Euro is down about 12% in the last year, the Yen is up about 7%. This results in a mix bag of currency returns, if you own a broad market international equity index fund such as the iShares MSCI EAFE Index Fund (EFA), which also includes exposure to other currencies, as well.