How Do Currency Shifts Affect International Investments?
International investing comes with its fair share of unique challenges, prominent among them, exchange rate fluctuations. While exposure to global currencies provides diversification, it can also affect considerations such as dividend payments.
In this clip from The Motley Fool's Industry Focus: Healthcare podcast, healthcare analyst Kristine Harjes and Fool Funds portfolio manager Charly Travers discuss how investors should approach currencyissues when investing globally.
A full transcript follows the video.
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This podcast was recorded on Oct. 19, 2016.
Kristine Harjes: Is currency another risk to add to that equation?Charly Travers:Yeah,I'd put currency as No. 2 on our risks. We invest directlyoverseas in a lot of cases, so we want to own the companieson their local markets. We think there's benefits of currency diversification. But that's a double-edged sword. We have noability to claim which directioncurrencies are going to move. So, sometimes -- take Brazil for example, in recent history -- when that currency moves against you,you could be doing great in the local market,and then when the results are translated to dollars for ourperformance reporting, it can be pretty painful.Harjes:That'sinteresting. Just to clarify what you mean by that,GlaxoSmithKlinetradeson the London Stock Exchange,as well as over here on the New York Stock Exchange. So,you guys would pick the London versionto buy shares in?Travers:That's a case-by-casebasis. But in certain cases...Harjes:Butthat's what you meant by that?Travers:Yes,we could buy stocks in Londonand Tokyo, wherever. But then you'reowning them in British pounds or yen, and yourresults are not just dependent onhow well the business is doing and the price you paid for the stuff, butwhat the currencies are doing as well. That's something we have no control over. Sometimes it's frustrating. Sometimes it works to our advantage.Harjes:Right,and I assume that affects the dividend payment as well.Travers:Right. There were years,Novartis, one of thebig pharmaceutical companies, a Swiss business,paid their dividend in Swiss francs. There was a five-year run whereAmerican investors who owned it in francs were doing so great, because the Swiss franc was so strong,and they were getting those dividendpayments in a strong currency.
Charly Travers owns shares of GlaxoSmithKline. Kristine Harjes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.