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Originally Posted by Denis
I thought that the Navra US fund was currency neutral, in that shares were purchased in and value was converted to immediately to avoid all hedging issues. Therefore implying that quoted return was not affected by currency fluctuations.Is this correct?
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Yes and no.
The changes that were brought in just meant that rather than holding cash in USD (and hence making their cash holding subject to currency fluctuations), they held cash in AUD and only converted to/from USD at the time of trading.
In the old system, distributions could be affected by currency movements, since realised profits held as USD cash could be eaten away by a rising AUD.
However, the changes only affect cash holdings ... the value of the fund (and hence unit price) is quoted to us in AUD, and includes both cash AND share asset value - so while the cash holdings no longer fluctuate due to currency movements, the value of the shares held by the fund still will.
If you buy shares in IBM @ $100 per share when the AUD buys you US$0.80, and then the currency climbs to US$0.90 while the share price is stagnant, then the value of your holdings in AUD terms drops by 12.5%. Of course, now we are seeing the opposite - a drop in the value of the AUD sees the value of the share holdings rise in value by the same proportion.
More explanation of the changes that were made are in Steve's presentation from March last year:
Navra presentation - US Fund - 20070329
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Sim'
This is a general comment only and does not constitute advice. Before making financial decisions you should seek advice from a professional adviser, who can take into account your specific circumstances and investment goals.
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