hedging the value of the portfolio (in dollars) for European subscribers of LI

[Korving99]

By using the LI portfolio’s we invest in US companies and ETF’s. In other words in dollars.

I am very interested how European subscribers (and partners) of LI hedge their portfolio against the dollar and when?

[Frank1 Grossmann]

– You can hedge by selling Forex USD versus Euros (EURUSD).
– You can also use the Futures on these ETFs which eliminates the currency risk. There are synthetic Futures for nearly every ETF.
– You can use real Futures like ES, GC, UB ….. instead of ETFs.
– You can sell options with a long expiry. For example a Jan 2021 put option on TLT. The higher the delta the closer the put option behaves like the underlying. Option selling however is nothing for beginners. I would sell equity options only with a high (0.7) delta and minimum 100 days expiry.

[Horizon60]

I was thinking that what we are interested about is the value of our account in EUR (for european investors), so when there’s a drawdown usually the market goes long usd and given that we are long usd due to our investment in usd etfs, we benefit from that and we reduce our drawdown when there’s one.
So strategies like gld-usd leveraged are very nice for americans that can increase their exposure on usd currency and reduce the drawdown, but not that nice for europeans, for example, as we already are long usd (and so short eur). Unless they are currency hedged, obviously. But currency hedging comes with a cost, so I was wondering if having strategies like GLD-USD leveraged in the portfolio AND being currency hedged is useless, as we could just be long GLD with no currency hedging, get pretty the same results but saving some money.
Eur-usd currency hedging is cheap these days, but it has been very expensive in the past, so it’s a problem that’s better to deal with.

[Frank1 Grossmann]

I personally prefer to use Futures to invest in SP500, Gold or Treasuries. For SP500 you can buy or sell ES or MES Futures. For Gold GC or MGC Futures and for Treasuries the UB Future.
The advantage is that with Futures I don’t keep US$. I can leave the account in Swiss Francs in my case. Only the profits accumulate in US$. Another big advantage is that I can work with leverage and keep most of my money on my Swiss accounts. This way I pay less negative interest, which is about -0.85% for SFR and -0.75% for Euros.
A big improvement for smaller investors are the Micro Futures MES and MGC. They trade at exactly the same price as ES and GC but have a 10x smaller multiplicator which makes it much simpler to allocate these assets.

[Horizon60]

You’re right, the advantages are many, but the problem is that I can only do simpler strategies (so no GLD-Usd lev or bond rotations, no low volatility indexes like SPLV and so on) and for treasuries there are no micro futures, so no possibility to adjust the allocations on my account unlike for gold and stocks.. an alternative is using CFD but you pay 1.65% per year of invested value on IB, that it’s not too bad but they are cfd, not the real things..

[marcel]

@Frank: I like the idea of using futures instead of ETFs for the reasons you mentioned. However, for ES and UB, would I still get the dividend yield and coupon yield?

[Frank1 Grossmann]

Yes, you get the dividend if you roll the Future in the next one. The December Future is 3370 and the next March Future is 3360. The dividend is in the 10 point difference =0.3% between the futures. Because of the dividend further out Futures are cheaper.
Futures Price = Stock Price × (1 + Risk-Free Interest Rate – Dividend Yield)

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