Currency Portfolio

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Frequently Asked Questions...

What is the weighting of the world stock market by country/region?

If I own a total US stock market index fund like VTSMX and an international index fund like VGTSX wanted my portfolio to mimic the performance of the world stock market, what weighting would I use? What is an inexpensive way to hedge the currency risk of owning an international fund?
Thank you, that is exactly what I wanted to know. I would also be very interested in finding out what is the real ROR on such a portfolio but I am not sure what to do since these international index funds are relatively new.


Answer:

By market capitalization one figure that I read has the U S markets at about 36%. How accurate that is I am not certain. I believe that figure is based on the Russell Global index. Here is the source.

http://etf.seekingalpha.com/article/38252

I do have a problem with investing based on market capitalization. I do not know if you recall but at one time the market cap of the Japanese stock market was greater than that of the U S stock market. Following that event the Japanese stock market proceeded on a ten year decline. So in my opinion investing based on market cap is not really a sound financial strategy. I believe a more viable strategy is to invest based on a more diversified approach. In fact I do not like investing based on market cap and investing in index funds that are based on market cap in my opinion is not the wisest of investment strategies taken by themselves. It is ok certainly to invest in index funds but with the realization that there is capitalization risk involved that should be taken into account.

Currency risk of owning international fund? For the last several years the currency risk has resulted from owning U S stock funds not international stock funds. That of course may change but based on U S government policies, I would not bet on it.

But to answer your question, I do not know of a way to do a currency hedge that will protect you against fluctuations in the relative values of your foreign holdings.

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