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The cost of foreign currency-denominated shares and ETFs

Shares and ETFs denominated in foreign currencies won't make extra returns, but might rack up extra charges

Shares and exchange traded funds (ETFs) come in a wide range of currency share classes and an Investors Chronicle reader wants to know whether he can use this to his advantage.

He asks: "I frequently see shares and ETFs denominated in both sterling and dollar share classes. If the dollar is rising against sterling, would it be better to buy the dollar share class? What is the difference from the perspective of a UK retail investor?"

There are several layers of currency to contend with when buying a foreign equity ETF, but the one that matters is the underlying currency of the ETF or share you are buying. The underlying currency, also known as the base currency, is the currency that the assets tracked by the ETF are valued in. For example, if you are buying an S&P 500 ETF, the underlying assets you are investing in will be valued in dollars, even if you buy a share class denominated in sterling. Whether you buy iShares Core S&P 500 UCITS ETF USD (CSPX) or iShares Core S&P 500 UCITS ETF GBP (CSP1) will not make any difference to your total return.

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