Frequently Asked Questions

What's the difference between USD returns and local returns?
The local returns show the returns of the MSCI index in its local currency (local currencies for regional indexes). This represents the experience of a local investor in that foreign market. The USD returns show the returns of the same MSCI index in U.S. dollars, after the index value has been converted from local currency terms into U.S. dollar terms. This represents the experience of U.S.

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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

What's the difference between USD returns and local returns?

The local returns show the returns of the MSCI index in its local currency (local currencies for regional indexes). This represents the experience of a local investor in that foreign market. The USD returns show the returns of the same MSCI index in U.S. dollars, after the index value has been converted from local currency terms into U.S. dollar terms. This represents the experience of U.S. investors in the same market who experience gains and losses in dollars.
 

What is FX Impact and why should I care?

FX Impact is the nominal difference between the USD and locally denominated returns of each index. It is NOT the return of the foreign currency. Rather, it is the difference in returns a U.S. investor experiences because of currency exposure and having to convert back into USD. It's important because many investors underestimate the impact of currency exposure – it can easily wipe out positive returns in international equities, or provide upside in otherwise flat markets. As always, people should remember that investing in international securities involves not only the risk of the equities themselves, but the currency of the portfolio securities.
 

Why is FX Impact different for indexes with the same currency?

FX impact is the difference between USD returns and local returns, but it can differ for countries with the same currency. This is because of scale dependence.

Imagine two countries with the same currency, both starting at an index level of 100. At the end of the week, Country A is at 80 and Country B is at 120 – in local terms. Their returns are -20% and +20%. Now imagine that the exchange rate at the beginning of the week was 1 USD: 1 LOCAL. At the end of the week, the exchange rate is now 1 USD: 1.2 LOCAL. This means the local currency depreciated and had a negative return of 20 %, relative to the USD. In essence, when you exchange that currency, you get fewer dollars now than you did before.

Country B, which was up 20% locally, would now be at a level of 96 [120*0.80] – hence it's down 4%. Country A , which was down 20% locally, would now be at a level of 64 [80*0.80] –hence it's down 36%. The FX Impact for Country A is -16% [-36% −(-20%)]. The FX Impact for Country B is -24% [-4%−20%].

While we could simply present currency as an absolute, we have chosen to show the direct differential between local and U.S. investors for comparative purposes.
 

What is the time series shown and why?

Because the publication is weekly, we show the rolling weekly total return of all indexes. We also show the rolling 3 month and 12 month returns to give our readers a better view of growing trends.
 

Why did you choose MSCI?

We've decided to partner with MSCI after an extensive search for an appropriate index provider of local and USD returns in every major developed, emerging and frontier market to use as a benchmark in our ETF.com analytics product.
 

When do you update the index definitions and breakdowns?

The index definitions and breakdowns are updated once every quarter.
 

How can I hedge my currency exposure? Is there an ETF for that?

Currency exposure can be hedged if you understand the breakdown of your exact day to day exposure in international ETFs. Of course, this can be a difficult challenge unless you are in currency-specific equity ETFs, or have a sizeable broad international position. There are also some ETF products on the market that provide international equity exposure with embedded currency hedging, and additionally ETF products which allow you to "short out" currency exposure of an international position. We encourage you to use our ETF Classification System and determine if these funds are appropriate for you.
 

How can I predict or anticipate currency movements?

There are a myriad of factors that can affect currency movements. Some of the key things to keep an eye out for are major central bank decisions and sovereign fiscal policies. If you are interested in learning more about the day-to-day world of currency trading, we encourage you to visit online resources such as Yahoo Finance: Currencies, FX Street or consult your financial advisor.

etf.com is the single source for ETF intelligence. We provide real-time ETF news and analysis to educate investors and drive financial knowledge in the space. Our personalized and accurate information, alongside industry-leading financial tools, are depended upon to develop winning investment and financial decisions. At etf.com, we strive to serve both the individual investor as well as the professional financial advisor to educate and grow the ETF community.