This week is turning out to be a great week to buy international shares. Or any ASX shares that hold international shares or assets for that matter.
Why?
Well, because our Australian dollar has been on a tear this week, that’s why.
On Monday, the Aussie dollar was buying around 67 US cents. Yesterday, our dollar hit 69.83 US cents before dropping back to 69.3 US cents – an extraordinary rally over just 2 days. We’re now back at a pre-coronavirus level against the greenback.
Why a higher Aussie dollar is significant for international shares
A higher Aussie dollar has many effects across the economy. Imports are cheaper, whilst exports become more expensive.
By extension, any assets that are defined in US dollars are now less valuable in Australian dollar terms. That’s why we’ve been seeing US-dominated investments like some exchange-traded funds (ETFs), listed investment companies (LICs) and listed investment trusts lose some steam over the past 2 days, despite a rising share market in both countries.
Take the iShares S&P 500 ETF (ASX: IVV). This ETF tracks the largest 500 companies over in the United States. Over the past week, IVV has lost 3.33% whilst the actual S&P 500 Index has risen 1.47%.
We can see the effects of this currency swing by looking at the iShares S&P 500 (AUD) Hedged) ETF (ASX: IHVV), which takes the impact of currency fluctuations away from its returns. This ETF is up 1.4% over the past week.
Whilst these movements are painful for anyone already holding US-based or international shares, by the same logic, it’s a good time to buy.
Buying a US-listed investment when our currency is at 69 US cents will make for a profitable investment on currency alone if the Aussie dollar heads back down towards the lows of ~55 US cents that we saw back in March.
Thus, I think this week is a great time to think about adding some international shares or ASX-listed ETFs, LITs and LICs that hold US investments.
Magellan Global Trust (ASX: MGG) is one such option. It’s an LIT that primarily invests in top US companies like Microsoft, Alphabet and Facebook.
MFF Capital Investments Ltd (ASX: MFF) is another option to consider. It’s a LIC that also invests in US companies with a long-term outlook. Some of its top holdings include the US payment giants Mastercard and Visa. MFF shares are still more than 25% below the highs we saw in February, despite the US markets’ strong rebound.
If those investments still don’t appeal to you, ETFs like IVV or perhaps the Vanguard U.S. Total Market Shares Index ETF (ASX: VTS) are always a solid choice.
Foolish takeaway
For those ASX investors who might desire more diversification in their ASX-dominated portfolios, I think this week is a great time to consider adding some US-based investments. With the Aussie dollar now closer to historically ‘normal’ levels, it’s a chance that may not come back for a while.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares), Facebook, Magellan Flagship Fund Ltd, Mastercard, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Facebook, Mastercard, and Visa. The Motley Fool Australia has recommended Alphabet (A shares), Facebook, and Mastercard. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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