The Down Side Of Foreign Investing

This should be a good one. I write a lot about the importance of owning foreign stocks. Well here is an example where it went against me this past quarter and something to understand if you own foreign stocks.

Most of my clients own Novartis ADRs (NVS) and I own it personally. It is a fine company doing good things and it has avoided (so far?) the problems that have plagued Merck and Pfizer.

The chart shows the three month performance of the ADRs, the ordinaries in Switzerland and the US dollar/Swiss franc cross rate(USD/CHF). The ADRs (the red line) were only up 2% or so but the ordinary shares were up about 7%. The reason for this is the action in the green line, the cross rate. You can see that the ADRs and the ords don’t diverge until the dollar starts to go up against the Swissi in mid May.

This is a great chart to clearly show how this can work for, or against, a US investor. It looks like Novartis was the right stock but the Swiss franc was the wrong currency. Next quarter or maybe the quarter after it could be the ADRs that do better.

So should you do something to mitigate this? You could fiddle with the Rydex Strengthening Dollar Fund (RYSBX) but this is not my trade. I have written about these funds, and they are interesting but layering in something like this is far from simple.

The real take away from this should just be knowing the downside of foreign investing.

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