Question: How does the going down of the Australian dollar affect the value we get when we buy ETFs for overseas markets like VTS and VEU? Would these ETFs still be considered cheap right now given our currency is no longer as strong as it used to be?
"Stick with your asset allocation as defined by your IPS" is the short answer : )
A decreasing AUD could have any number of effects. eg
- you would expect each Australian dollar would buy less VTS than it did previously.
- however as the AUD slides against the USD, people holding VTS might decide that the Australian stock market is better value for money, and liquidate some of their VTS in order to buy Australian stocks, thus lowering the price of VTS (and letting us buy more with each Australian dollar)
There are lots of these effects, and together they determine how a country's market moves as a whole when compared to their currency. VTS is just coming off several years of increasing stock indices and increasing USD. Australia is seeing weakness in both at the moment.
Your asset allocation should have moved over the last 12 months. VTS should be up a bit, VEU should be down a bit and VAS should be down a bit too, so you're possibly overweight VTS, and if you were looking to rebalance with say $10,000 you'd buy less VTS than the other two. Part of the reason is because of how the exchange rates have moved, part is due to how the stock indices have moved.