First half of 2025: the S&P 500 at a record, and down 6.5% in euros

The S&P 500 closed the first half of 2025 at a record 6,204.95 points, 5.5% above its level at the end of 2024. A euro investor who held it lost about 6.5% over the same six months, because the euro rose from USD 1.0389 to USD 1.1720 at the ECB's reference rates. The DAX gained 20.1%. Currency was the largest single contributor to a euro investor's US return this half-year, larger than the April sell-off, and most portfolios took that exposure without anyone deciding on it.

What happened between January and June?

Three numbers describe the half-year. The S&P 500 went from 5,881.63 to 6,204.95, by way of a low of 4,982.77 on 8 April, almost 19% below its February high. The DAX went from 19,909.14 to 23,909.61. And the euro, measured by the ECB's daily reference rate, went from 1.0389 dollars on 31 December to 1.1720 on 30 June, a rise of 12.8%.

The dollar index, which measures the dollar against a basket of major currencies, fell 10.8%. That is its weakest first half since 1973. Part of the move came in a single day: the reference rate was 1.0803 on 2 April, the day the US tariffs were announced, and 1.1097 on 3 April. In earlier sell-offs the dollar usually rose as shares fell and cushioned the loss for foreign holders. In April it fell with them. We wrote about that week and its effect on the private share of a portfolio in the tariff shock and the denominator effect.

One caveat on the comparison. The DAX as usually quoted is a performance index and includes dividends; the S&P 500 figure is a price index and does not. The gap between the two markets is therefore slightly overstated, but not by enough to change the picture.

How does a 5.5% gain become a 6.5% loss?

A euro investor's return on a dollar asset is the product of two returns: the asset's in dollars and the dollar's in euros. One dollar bought EUR 0.9626 at the end of December and EUR 0.8532 at the end of June, which is 11.4% less. So:

1.055 × 0.886 = 0.935

The index in euros stood at about 5,661 at the turn of the year and 5,294 at the end of June. Note that a 12.8% rise in the euro is an 11.4% fall in the dollar, not 12.8%. The two figures describe the same move from opposite sides, and mixing them up is the most common error in half-year commentaries.

Most German depots carry this exposure through a global equity ETF, which consists mostly of US shares. The fund may be domiciled in Ireland, quoted in euros on Xetra and labelled in euros on the statement. None of that matters. What matters is the currency of the companies' share prices, and the ETF converts it every day.

What does the dollar do to a USD fund commitment?

For an investor in venture or private equity funds denominated in dollars, the effect has two sides, and most people look at only one.

Say you committed USD 1,000,000 to a fund. USD 700,000 has been called, the stake's NAV is USD 400,000 after some distributions, and USD 300,000 is still unfunded. Suppose the dollar NAV did not move at all in the first half.

In euros the NAV fell from about EUR 385,000 to EUR 341,300. That is EUR 43,700 less, and no company in the fund is worth a cent less in dollars. The quarterly report will not show it, because the report is in dollars.

The unfunded commitment moved the other way. USD 300,000 would have cost EUR 288,800 at the December rate and costs EUR 256,000 at the June rate. The capital calls still to come have become EUR 32,800 cheaper.

An investor early in a fund's life, with most of the commitment still to be paid, is therefore largely hedged without doing anything: what is lost on the small NAV is saved on the large unfunded amount. An investor late in a fund's life, with the money in and distributions pending, carries the full currency risk on what comes back. The same fund is a different currency position in year two and in year eight.

It also means the fund's reported IRR is not yours. The manager computes it from dollar cash flows. Yours comes from the euros that left your account on each call date and the euros that arrive with each distribution, each at the rate of its day. The ECB reference rate of the value date is the neutral choice for that conversion, and a record that stores it per payment gives the same answer next year as it does today. A record that converts everything at the current rate changes its own history with every move in the dollar.

Should a euro investor hedge the dollar now?

After a fall of this size the question arrives by itself, usually too late. Three considerations, none of them a forecast.

Hedging has a price, and the price is the interest rate difference. The Federal Reserve's target range is 4.25% to 4.50%, the ECB's deposit rate has been 2.00% since June. A euro investor who sells dollars forward gives up roughly that difference, a little over two percentage points a year at present. A currency-hedged S&P 500 ETF pays it inside the fund. Over ten years that is a large, certain cost against an uncertain benefit.

For shares, the case for hedging is weak in the long run, since large companies earn across currencies and exchange rates have tended to swing both ways over a decade. For bonds and cash it is stronger: a dollar bond yielding 4% whose currency moves 11% in six months is a currency position with a coupon attached.

For private funds, hedging is impractical for an individual. The dates and amounts of calls and distributions are unknown, so there is nothing definite to sell forward. What can be controlled is the planning: hold the liquidity for dollar calls in the knowledge that its euro cost will move by ten per cent or more, and decide deliberately what share of new commitments goes into dollar funds.

This is a description of mechanics, not investment advice.

The useful exercise for this week is to add up the portfolio by currency of the underlying assets, not by the currency on the statement: the global ETF split into its US part and the rest, the dollar funds with NAV and unfunded shown separately, the dollar cash. For most euro investors with a standard ETF and one or two US venture funds, the total will be higher than they would have said from memory.