Calculation and mechanics
Simplified, the USD return consists of the return of the local stock market and the change of the local currency against the US dollar. If, for example, the local market rises by 5% and the currency loses roughly 5% against the dollar at the same time, a large part of the equity return can disappear again for a USD investor.
Currency-hedged variants reduce this effect substantially but cannot eliminate it entirely because of hedging costs and ongoing adjustments.
Country indices can also be highly concentrated. In smaller markets, individual large companies sometimes carry a high weight. A look at the top holdings is therefore particularly important.
return USD ~ (1 + local return) x (1 + change of currency/USD) - 1
Distinction
Regional ETFs such as VGK or EEM spread the capital across several countries and thereby reduce individual country-specific risks. Country ETFs concentrate the exposure on a single market.
For comparing several country ETFs, the same period and the same currency should be used, either as absolute USD return or as return relative to a benchmark. How similarly the returns of different countries have moved recently is shown by the correlation matrix.
Related terms
- Return Relative to a Benchmark (Relative performance, vs SPY, vs ACWI)
- Correlation Matrix (30-day correlation)
- Holdings (Positions of an ETF, top holdings)
- AUM (Assets under Management, net assets of a fund)
All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.