When you invest in markets outside of your own portfolio's base currency, you are dealing with both market and currency effects. That is, the effect of the securities you purchase increasing or decreasing in value, and the effect of changes to the currencies. An equity portfolio's return comes from market selection and security selection decisions ─ as well as currency selection decisions. Additionally, you must consider your strategy relative to hedging your currency exposure. For example, if the manager chooses to overweight or underweight a dollar denominated portfolio's portion of assets in Japan compared to its benchmark, then the fluctuation of the Yen (¥) to the dollar ($) will have an impact on the portfolio's overall return. The following figure illustrates the sources of a global portfolio's return using the Karnosky-Singer model.
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