Hedging's little extra

Currency hedging overseas investments offers the chance of adding an extra 3-4% to your returns – at no cost.

PORTFOLIO POINT: Australians investing offshore earn precious extra income if they choose to hedge away their currency exchange rate risk. This applies not just to fixed interest but also to equities, property and even gold and other commodities.
Australians invest more than $50 billion in overseas equities and, according to Morningstar figures for retail managed funds, 86% of this is invested using unhedged Australian dollars. Over the past several years this has been a costly positioning as the Australian dollar has strengthened against most other currencies, thereby depressing returns from otherwise stronger performing overseas markets. What might be surprising is that even in 2011 – when the Australian dollar coincidentally started and finished the year worth $US1.02, 65 UK pence and about 78 euro cents – currency-hedged overseas investments enjoyed an average extra 3% income return. Very few Australian investors realise that not only does it not cost to hedge your currency risk, but those who do so earn precious extra income. This is thanks to the Reserve Bank keeping our benchmark interest rates high and is a retail form of the popular institutional investor "carry trade". Let me explain how this benefit works and raise several intriguing implications this has for your portfolio.

Read this before you go any further '¦

{{content.question}}

Mastercard

{{ twilioFailed ? 'SMS Code Failed to Send…' : 'An SMS verification code has been sent ...' }}

Hi {{ user.FirstName }}

Looks like you have already taken a free trial

Please enter your payment details

We have sent you a code via SMS to {{user.DayPhone}}

please enter this code below to complete your SMS verification

We cannot send you a code via SMS to {{user.DayPhone}}

If you didn't receive SMS code please

SMS code cannot be sent due to: {{ twilioStatus }}

Please select one of the options below:

Looks you are already a member. Please enter your password to proceed

Please untick this box when using a public or shared device


Verify your mobile number to proceed…

Please check your mobile number below and press the Send Verification Code button. This will be used to complete your verification in the next step.

Please sign up for full access

Mastercard

Updating information

Please wait ...

Trial

Mastercard
{{ productPrice }} / day
( GST included )
Price $0
GST $0
Discount -{{productDiscount}}
TOTAL {{productPrice}}
  • Mastercard
  • Visa

Please click on the ACTIVATE button to finalise your membership

Mastercard

The email address you entered is registered with InvestSMART.

Please login or select "Don't know password"

Please untick this box when using a public or shared device


Register as a new member

(using a different email)

Related Articles