S&P 500 At Record Highs: Why Is My ETF Down?

Summary

The video explores why European investors in US-based ETFs, like the S&P 500 or FTSE World, may be seeing losses despite the strong performance of the US stock market. The key factor is the currency fluctuation between the US dollar and the euro, which has caused significant changes in returns. The host also discusses the pros and cons of currency hedging and shares insights into the performance of their own ETF portfolio. Despite current losses in euros, the video encourages a positive mindset by highlighting the long-term benefits of diversified global investments.

Takeaways

• 😀 Despite a challenging start to 2025, the S&P 500 is currently up 6.4% this year, recovering from a 19% drop in April.
• 😀 European investors holding US-based ETFs like the S&P 500 may be down around 7-8% in euros, despite the US market's recovery.
• 😀 Currency fluctuations, specifically the US dollar's decline against the euro, are significantly impacting European investors' returns.
• 😀 The US dollar has lost over 12% of its value against the euro since the beginning of 2025, affecting USD-denominated assets like US stocks.
• 😀 Even though US stocks are up, European investors are seeing lower returns in euros due to the strength of the euro against the US dollar.
• 😀 Currency hedging in global ETFs is usually not beneficial for long-term investors, as hedged versions often underperform their unhedged counterparts.
• 😀 Over the past six years, currency-hedged versions of global ETFs like the iShares Core MSCI World ETF have underperformed by almost 13 percentage points.
• 😀 Hedging is expensive and typically not recommended for passive long-term investors unless one is certain the euro will continue strengthening against major global currencies.
• 😀 Despite the challenges, the investor remains optimistic, noting that years of profit from favorable currency fluctuations outweigh the losses from this year's dollar weakness.
• 😀 The investor's portfolio, which includes global ETFs and Bitcoin, has been impacted by currency fluctuations but continues with a long-term strategy of regular monthly investing.

Q & A

Why are European investors seeing losses in their S&P 500 ETFs, even though the S&P 500 has recovered in 2025?

European investors are seeing losses because the strength of the euro relative to the US dollar has significantly impacted the returns. While the S&P 500 has recovered by 6.4% in USD, the drop in USD value compared to the euro means that the returns for European investors are down by about 8% when calculated in euros.

What does the post by a European investor about VWCE's performance illustrate?

The post illustrates the confusion European investors face when their investments in global ETFs like VWCE are not reflecting the performance of US stocks, despite a significant portion of these ETFs being composed of US companies. The investor is puzzled about the discrepancy between the performance of the ETF and the S&P 500 index.

How has the US dollar’s performance against the euro affected global ETFs in 2025?

In 2025, the US dollar lost over 12% of its value against the euro. As a result, any USD-denominated asset, such as US stocks or global ETFs with a high US stock composition, saw a decline in value for European investors when measured in euros, turning a potential gain in USD into a loss in euros.

What is the impact of currency fluctuations on long-term investments in global ETFs?

Currency fluctuations are a normal part of global investing, and their impact can vary year by year. Sometimes they benefit investors, but in other years, they can reduce returns. Long-term investors should focus on the overall growth of their investments rather than short-term fluctuations caused by exchange rates.

Is it advisable for European investors to hedge against currency fluctuations in global ETFs?

Based on the analysis of historical data, hedging against currency fluctuations is generally not advisable for long-term passive investors. It has been shown that the costs of currency hedging can outweigh the potential benefits, as demonstrated by the underperformance of hedged ETFs compared to unhedged versions.

What was the performance comparison between the unhedged and hedged versions of the iShares Core MSCI World ETF?

Since June 2019, the unhedged version of the iShares Core MSCI World ETF outperformed the hedged version by 12 percentage points. This underperformance of the hedged version demonstrates that currency hedging can be an expensive strategy with limited long-term benefit for passive investors.

How have currency fluctuations worked in favor of European investors in previous years?

In previous years, there have been instances where a weaker euro against the US dollar benefitted European investors. For example, in 2021, the dollar’s strength added 10 percentage points to returns for European investors. In 2024, a stronger dollar helped reduce losses for the same investors.

What investment strategy is being followed by the speaker, and why is it considered effective?

The speaker follows a simple, consistent strategy of investing in a global ETF every month using 90% of their savings. This strategy is effective because it remains unshaken by market fluctuations, allowing for long-term growth without attempting to time the market or make decisions based on short-term events.

How has the speaker’s ETF portfolio performed in 2025, and what is their outlook on the market?

In 2025, the speaker’s ETF portfolio is down about 4.3% or €20,700 year-to-date. Despite this, they remain optimistic, focusing on the long-term performance and continued investment in global ETFs. The speaker believes in the resilience of the strategy, even amid short-term losses, and feels bullish about future returns.

Why does the speaker emphasize not hedging against currency risk, and what is their advice for European investors?

The speaker emphasizes not hedging because the costs of hedging, in terms of underperformance, often outweigh any potential benefits. Their advice for European investors is to focus on global diversification and passive investing rather than trying to mitigate currency risk, as currency fluctuations tend to balance out over time.