South African Rand Holds Back EZA

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Investing in countries with so-called commodity currencies has been a way for U.S. investors to turn promising equity returns into off-the-charts total returns because of how these currencies have strengthened against the dollar as commodities have boomed in the past decade.

Unfortunately, the South African rand-one particularly popular commodity currency that had benefited from booming gold prices-looms these days as the ultimate counterexample for U.S. investors in South Africa.

While local gold producers continue to do quite well amid macroeconomic uncertainty following the market crash of 2008, the rand has been the victim of risk aversion in a way that has obliterated returns for U.S. investors.

As an example, investors in the iShares MSCI South Africa Index Fund (NYSEArca:EZA) in the past year have seen total returns of -4.7 percent, while the MSCI South African Local Index has returned 14.09 percent.

That gaping 18.81 percentage point difference is mostly about the rand's depreciation over the past year-but also about fund fees, tracking error and even hedging costs.

In short, a promising investment for local investors turns horrible for U.S. investors-yet another example of how much currency movements can affect investment returns in globalized markets.

South African Rand vs. MSCI South_Africa Don't forget to check IndexUniverse.com's ETF Data section.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: ECH , EWA , EZA

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