In today’s interconnected world, global companies play a significant role in our daily lives. However, when Australian investors allocate their capital to global markets, they are exposed not only to the performance of the underlying assets, but also to fluctuations in currency exchange rates. Whether or not to hedge this currency exposure is a key strategic decision that can impact returns, volatility and overall investment outcomes.
Currency hedging is a strategy employed by investment managers to mitigate the risk associated with fluctuations in foreign exchange rates. In the context of global equity funds, currency hedging aims to minimise the impact of exchange rate movements on the fund’s performance.
Global equity funds in Australia may be fully or partly hedged or unhedged. A hedged fund is one where currency risk is deliberately reduced or eliminated using financial instruments to offset the impact of variations in exchange rates.
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