Many of the good folks of Freetrade have been investing in one or other S&P 500 index using an ETF. As we all know this index has declined in the last year by over 20% (at one point). But perhaps some of us haven’t felt this decline (or at least not as badly as that). Why not?
The reason is that GB pound (GBP) (£) has also been declining against the US dollar (USD)($). Google screenshot over year of how many USD dollars one GBP has bought you:
So how does this translate into your not so bad looking, non currency hedged, SP500 ETF? Do you want to see by how much? I took the daily closing currency data from yahoo!Finance, did some calculations to transform the S&P 500 data and knocked together this graph which shows the % daily change in the SP500 over the past year (i.e. from 25 Oct 2021) in both dollars and pounds:
I hope you can now see how much the weak pound has benefited your S&P 500 GBP ETF. If you look at a gain price chart of your (unhedged) SP500 GBP ETF over one year you will see it looks remarkably like my red line. But if you look at the gain in the SP500 index in dollars (and therefore S&P 500 dollar denominated ETF) you will see a graph that looks remarkably like my green line.
Well now you know. No more conundrum.
Enjoy.