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I have found a mutual fund whose denominated currency is Euros but its underlying asset's currency is US Dollars (it tracks the S&P 500).

The fund can be found here.

While inspecting its fees, I have found something called "Conversion fee", whose value is 1%. This is the first time I see this kind of fee in a fund. I'm assuming it's some sort of load applied to EUR to USD conversion and vice-versa, is this correct?

That 1%, over which quantity is calculated? Is it over the investment's NAV? Isn't it an astonishing high fee?

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Looking at their relative performance to the tracked index, I doubt that 1% is an exchange rate conversion fee. Their relative performance and tracking error should be much worse if that's what that is.

I believe this "Conversion Fee" refers to what most US funds call an exchange fee i.e. a fee charge if you want to move out of one fund into another offered by the same asset manager.

Also note this section in the link you posted:

The fund performance is calculated net of investment management fees including commissions and custody fees. The benchmark performances are calculated with net dividend reinvested when applicable. Both performances for funds and benchmarks are calculated using internal software fed by external sources (predominantly Datastream).

The exchange rates used to convert the benchmark and investment funds are the rates published by WM/Reuters at 16:00 (London time) on the last day of the month.

This doesn't indicate that exchange rate fees are in the performance calculation, and clarifies that they use published rates without mentioning any fee adjustment. As an institutional trader, I would guess they can optimize to meet or beat those published rates.

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