Earlier I showed annual total and price returns of the MSCI World Index in US dollars. Now I show the Index annual total returns in Icelandic kronas to see how movements in the exchange rate of the ISK affect the Index returns from the perspective of an Iceland-based investor.

When converted to and expressed in ISK terms, using the Central Bank of Iceland end of year reference bid rate up to April 2020 and the mid rate thereafter, we see how the exchange rate between the ISK and USD can increase or reduce the returns for an Icelandic investor. A USD appreciation vis-à-vis the ISK improves returns in kronas, while a depreciation of the US dollar vs. the krona can worsen the returns in ISK. So the move in the USDISK exchange rate can act both as a blessing or a curse for investors located in Iceland.

The first two charts below show the annual total returns in ISK for the Index over the 36 year period (1988-2023). In 27 years out of 36, the Index generated positive total returns in US dollars. If we convert the Index and express it in Icelandic krona (ISK), then we get 29 positive and seven negative return years. A relatively strong or strengthening US$ against the ISK has a positive effect on the Index return in ISK terms. Vice versa for a weak or weakening dollar. Last year (2023), the return of the Index in USD was 24.4%. However, over the same period, the USD decreased 4.1% in value versus the ISK – resulting in a 19.3% positive return for the Index in ISK. 

Third chart shows the annual total returns in context of the mean and the standard deviations. We have 19 years with above average (blue line) returns, five years where the returns are more than one standard deviation above the mean and five years where the returns are more than one standard deviation below the mean. However, we have only two years (1988 and 1989) where the positive return is above two standard deviations and one year (2002) where the negative return is below two standard deviations.