• All blog entries
    • Calculators
    • Case studies
    • Cost of living
    • CPF Are You Ready?
    • CPF Matters
    • Credit Management
    • e-Learning
    • Estate Planning
    • Events
    • Financial advisers
    • High Networth
    • Insurance
    • Investments
    • Letters to the Press
    • Magazines
    • Others
    • Retirement Planning
    • Scams
    • Surveys
    • Tragic Stories
    • Unethical sales process
    • Videos
  • Legal
  • Testimonies
    • Individual testimonies
    • Gallery
  • My Account
Hi, looking for a fee-based financial planner in Singapore? Read this article now!
  • Home
  • About
    • About Wilfred Ling
    • Why do you run your own professional financial planning practice?
  • FAQs
    • FAQs on Wilfred Ling’s Financial Services
    • FAQs on Financial Planning
    • FAQs on Investments
    • FAQs on Insurance
    • FAQs on Estate Planning
  • Services
    • Overview
    • Create a financially secure plan for your young family (package details)
    • Retirement Planning
    • Investment Portfolio Management
    • Insurance Planning
  • Fees
  • Cool Tools
  • Contact
  • Subscribe
You are here: Home / Investments / Swiss Franc currency surprise and its effects on ETFs

Swiss Franc currency surprise and its effects on ETFs

29, January 2015 by Wilfred Ling 1 Comment

Question: “Wilfred, I suffered more than 10% lost in an ETF when Swiss Franc appreciated in value overnight. Apparently my ETF was denominated in Swiss Franc (CHF). I also don’t understand why I did not make a profit since it was reported that the CHF appreciated significantly. Actually, I am very confused. All the charts show the CHF depreciated value. I think the reporters got it all mixed up.”

For those who were living in a hole, Switzerland decides to remove its cap on its currency. For a few years, the value of the Swiss Franc currency was artificially suppressed at a limit of 1.2 CHF for 1 Euro. At this point of writing, it is now nearly at parity – meaning 1 CHF can buy 1 Euro. This means the Swiss Franc has appreciated in value. How can this be since 1 CHF is less than 1.2 CHF?

To understand this, just imagine that in the past, it takes 1.2 CHF to buy one apple (i.e. replace “1 Euro” with an apple). Now it only takes 1 CHF to buy an apple. The purchasing power of the CHF has increased. Alternatively it can be viewed that the price of the apple has deceased. Currency is always valued against another currency. Hence, an appreciation of a currency means a depreciation of another (and vice-versa). The chart that always confused people is this one below which shows a graph going down. But it actually implies the Swiss Franc going up against the Euro.

CHF vs EURO

CHF vs EURO

How does Switzerland control its currency in its past? Simple: by printing Swiss Franc money to purchase the Euros.  In this modern age, central banks do not actually physically print money. It is done digitally.

Back to the person who lost money. This is the graph showing his losses:

iShares MSCI World ETF - USD and CHF version

iShares MSCI World ETF - USD and CHF versions

The ETF in question was the iShares MSCI World UCITS ETF. The chart shows that CHF version plunged in value after 14 January 2015 while the USD version was very stable. Both CHF and USD versions can be purchased from the Swiss Stock Exchange.

In fact, this ETF is traded in many currencies as shown in the chart below:

iShares MSCI World ETF - other currency versions

iShares MSCI World ETF - other currency versions

Why did the CHF plunge? Should it not appreciate in value since CHF appreciated? This is where most people get very confused when they buy foreign currency dominated funds. Both USD and CHF (as well as the GBP, EUR, JPY) are actually identical ETFs. The CHF version is merely the trading currency but it does not represent the underlying currency. When the CHF currency appreciated in value, the ETF denominated in CHF has to decease so that the value of the ETF remains the same. What does it mean by ‘value’? To simplify matter, let’s say you are a Singapore investor. Hence, the SGD is your home currency and thus you value all your investments in SGD. Below is the chart showing the value in SGD of these different ETFs:

iShares MSCI World ETF in SGD

iShares MSCI World ETF in SGD

You can see that from SGD perspective, all the ETFs are identical. There were no massive losses due to the appreciation of the Swiss Franc.

Does that mean that you do not need to worry about the currency of the ETF? Not so, if you buy the CHF hedged class version, you actually enjoyed a whopping appreciation as shown below:

iShares MSCI World CHF Hedged ETF in SGD

iShares MSCI World CHF Hedged ETF in SGD

Like this article? Subscribe to my newsletter below for more.

Get regular Tips on Financial Planning. Free subscription for 3 years. Covers all aspect of financial planning such as 'How much salary you should have?', 'How to avoid insurance that is not suitable?", 'What are the retirement planning methods?", etc

Share this:

  • Tweet
  • Print

Related

Filed Under: Investments

Comments

  1. xyz says

    30, January 2015 at 6:13 pm

    I’m shocked that so-called investors can ask such a simple basic question, and don’t understand what is going on!!

    Reply

What do you think? Leave a comment. Cancel reply


WILFRED LING, CFA

WANT TO GET REGULAR TIPS ON FINANCIAL PLANNING?

JOIN with thousands of other subscribers in getting tips on all aspect of financial planning such as "What is the minimum salary required?", "How avoid insurance that is not suitable", etc.


WILFRED LING IN THE NEWS

Click HERE to find out more.


THE KIND OF CLIENTS I AM LOOKING FOR

NEW TO US?

Learn how you can fully benefit from this massive website: HERE

For Registered Users Only (free)

  • Webinar on 7 Real Stories To Achieve Your Financial Freedom 6/6/2023
  • Webinar on Major change in cancer treatments in your integrated shield plans 3/9/2022
  • How and what to invest now? (Webinar) 28/7/2022
  • How to identify high performing unit trusts in 3 steps (Webinar) 3/9/2021
  • Financial Planning – Christian Perspective Part 2 (Webinar) 14/8/2021

View All

For Clients Only

  • Video Message to Clients 30/12/2021
  • Exclusive client-only Investment Update Webinar by Wilfred 26/11/2021
  • JPMorgan Guide to Market Q2 2020 15/4/2020
  • JPMorgan Perspective Q2 2020 15/4/2020
  • JPMorgan Guide to Market Q1 2020 5/2/2020

View All

Recent comments

  • Dipokdas on Travel Without Financial Worries: 3 Tips to Achieve Financial Independence (Sydney)
  • Nay Nay on Is PruSelect Vantage plan a good or bad product?
  • Basil on Question on Manulife InvestReady
  • mah weng kong on Is PruSelect Vantage plan a good or bad product?
  • Rafi on Wilfred Ling’s Story, the beginning
  • ECE7 on Wilfred Ling’s Story, the beginning

To be notified of new blog post, like this facebook page

To be notified of new blog post, like this facebook page

Read articles based on different categories

Chartered Financial Analyst

CFA

Chartered Financial Consultant

ChFC

Featured Blogger

IM$avvy

© Copyright 2006-2025 Wilfred Ling

This advertisement or publication has not been reviewed by the Monetary Authority of Singapore

hollow-nasty
hollow-nasty
hollow-nasty
hollow-nasty