Investing while AUD is so strong?
January 3, 2011 6:54 PM   Subscribe

What's a simple investment an Aussie can make, to make the most of the strength of the Australian dollar? Everyone seems to think the Aussie dollar is overvalued right now, and recommends investing overseas. I have no experience in such matters, but I do have a Commsec account. Is there an US indexed fund available to Australians that anyone could recommend? Or would you recommend something else? The simpler, the better; I really don't have much experience in this. I'm not going to invest too much, but I'd like to know what a conservative, minimum-fuss option might be. Thanks!
posted by surenoproblem to Work & Money (8 answers total)
Your question contains internal contradictions. You say that the Aussie dollar is overvalued and you want to take advantage of that strength. Overvalued would usually imply that you expect to become correctly valued. At the same time, you want to take advantage of its strength, which suggests that you expect it to continue to appreciate.

If you explain what you think will happen to your currency I will tell you how to bet on that outcome, but my standing advice is not to invest in things you don't understand.
posted by shothotbot at 7:05 PM on January 3, 2011 [1 favorite]

You say that the Aussie dollar is overvalued and you want to take advantage of that strength. Overvalued would usually imply that you expect to become correctly valued. At the same time, you want to take advantage of its strength, which suggests that you expect it to continue to appreciate.

I don't see that the OP has expressed this (bolded part). The point is to buy something non-AUD-denominated now (while the AUD is considered overvalued) to take advantage of an expected correction/devaluation of the AUD.

Without adding anything about the outlook for AUD/USD, because I'm not sure I concur with the OP's beliefs, Commsec themselves include an example here showing the availability of a DJIA tracker, as an example of using Commsec to gain exposure to international equities.

(This is not financial advice, I am not a financial advisor, past performance is not indicative of future performance, and so on...)
posted by pompomtom at 7:21 PM on January 3, 2011

I'm not Australian, nor a financial advisor.

The minimum-fuss option in my mind is to invest in a local investment that then invests in the international stocks, rather than Commsec's example of an international account to trade directly in the US, which seems a lot of fuss given local alternatives.

Based on my 20+ minutes of experience in Australian securities issues, I'd buy shares in the two international Vanguard Exchange Traded Funds that trade on the ASX.

An ETF is essentially a cross between a publicly traded company and a mutual fund; it's a company that does nothing other than buy the stocks that comprise the index it intends to follow. Because it does nothing than buying all of the stocks in the index, it can keep management fees low. Management fees are important, because you're guaranteed to pay them. If Nifty Fund charges 2% (typical) management fee, they need to beat the market by almost 2% before they break even with something like Vanguard, who are renowned for low fees; they charge 0.07% on their US Total Market fund (VTS), and 0.25% on VEU, which invests in practically everywhere else.

So basically, if you buy VTS shares, those represent fractions of the 3000+ companies that the ETF buys. It's buying them in the US. so the fund is doing the currency conversion.

That said, I'd personally not make investment decisions based on short term currency fluctuations; I think that a long term (5+ year) outlook is more likely to be successful. If everyone thinks something, then the market has already taken that into account.
posted by Homeboy Trouble at 7:35 PM on January 3, 2011 [1 favorite]

Working on the assumption that you expect the AUD to depreciate against the USD..

If you buy a stock index exchange traded fund, like the SPY for example which is an which invests in the S&P 500, you will be exposed to both the risk of the USD/AUD exchange rate and the risk of the US stock market. So if US stocks go up and the AUD does down, you win twice. Obviously, if the AUD continues to appreciate and US stocks take a dive, then you have double pain. Almost certainly, your return will be dominated by the stock return, not the currency return.

You could take the slightly convoluted step of selling whatever Australian stocks you own and buy the equivalent of an Australian stock index ETF trading in new york, but priced in dollars. This appeals to me for its obscurity, but it's silly so I won't supply the ticker.

A less risky choice would be to by a short term government bond fund such as SHY, which buys 1-3 year US government securities and gives you a nice, sexy yield of 1% while you hope the AUD depreciates.

If you want to make a pure bet on the AUD you might be able to literally make a bet. There is an Aussie dollar etf which trades in new york called FXA. If you want to bet the USD is appreciating you need to go SHORT this etf. There may be a dollar ETF that trades in Australia, but I cant find one. You can call your broker ask if there is a local etf that is long USD short AUD.
posted by shothotbot at 7:43 PM on January 3, 2011 [1 favorite]

I can't advise you on investments per se, but I know several Australians who are taking advantage of the higher dollar by pre-ordering bulk supplies of products which are cheaper in the US. For example, one has ordered a year's supply of makeup; another has bought gift vouchers for Obviously, this is consumption, not investment. But if you restrict your spending to staple products that you would otherwise have bought at inflated Australian prices, you could save enough money to give a decent rate of return.
posted by embrangled at 12:00 AM on January 4, 2011


When I was back home in October I ordered a few hundred dollars US when it was at around .95. Most banks were sold out of USD, everyone I knew was buying up greenbacks!
posted by wingless_angel at 1:42 AM on January 4, 2011

Gold, perhaps?
posted by Thug at 4:44 AM on January 4, 2011

ONLY follow wingless_angel's advice of cash if you intend to watch the daily markets, and to trade soon.

If your AUS$ are overvalued, and you buy an American index fund (tracking the DOW or S&P 500, for instance), when it drops in value again, you will have effectively returned the overvalue to your account (less the transaction fee, and overhead costs of the fund, plus any gains in fund value). Index funds should have lower overhead costs than other mutual funds.

HOWEVER, upon looking for some reasonable numbers to guide you, I found out that you may well have missed the opportunity you heard about. A 15% gain could have been yours today, if you'd invested 6 mos ago (less fees, of course). That's considerable return for such a short period! I doubt AUD is going to continue dropping at this rate; instead, I'd guess it's no longer "overvalued".
posted by IAmBroom at 6:46 AM on January 4, 2011

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