Author Topic: currency hedged funds  (Read 311 times)

FI4good

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currency hedged funds
« on: September 07, 2017, 11:26:51 AM »
My companies pension provider seems to have decided to limit the amount of funds I can invest into ,

I notice 4 of the 5 equity funds they are offering are currency hedged.

From the data i've gleaned on the internet currency hedging over the long term is a waste of time but in the short term it might even out fluctuations in portfolio value.

To me this seems like charging the suckka consumer a 0.2% premium for currency hedging so they don't get frightened by short term changes over a couple of months/years to their pension value.

Sat in the UK with brexit on the cards further devaluation of the pound seems likely, interest rate rises to support the currency seem untenable, most mortgages sold in the last 10 years seem to assume a maximum of 6% interest on "affordability" calculator in worst case scenarios , so hedging feels wrong when i'm investing in the USA, Europe and Australasia as compared to this island in the corner of the atlantic . 

I will be asking why my fund options are being limited and will see if my firm will give me my match and pay into my self invested personal pension rather than my  company one. 

Anyone with experience of currency hedged funds and spot what i'm missing ?
« Last Edit: September 07, 2017, 11:29:52 AM by FI4good »

Indexer

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Re: currency hedged funds
« Reply #1 on: September 08, 2017, 04:46:20 PM »
At least according to the Vanguard article I read awhile back, it's a waste of time with international stocks but it can be valuable with international bonds.

The reason is that stocks fluctuate so much that the volatility associated with the currency doesn't make a big difference. Sometimes the currency fluctuations even offset the market fluctuations so it can act as a built in hedge. Example: a falling currency helps exports which helps corporate profits. Conclusion, for stocks adding currency hedging is kind of a waste.

For international bonds it makes more sense because the yield on the bonds is fairly stable and the bonds don't normally fluctuate very much. The currency fluctuations can be more intense than the fluctuations of the bonds themselves. Since you normally own bonds for stability that is a lot of extra risk associated with the currency. Conclusion, for international bonds hedging is one way to further lower risk.

FI4good

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Re: currency hedged funds
« Reply #2 on: September 09, 2017, 02:29:39 PM »
Thanks Indexer .

TheAnonOne

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Re: currency hedged funds
« Reply #3 on: September 12, 2017, 10:24:37 AM »
It's important to know also, that the fluctuations are not always bad either. So assuming you own international assets in a few countries, they tend to even out anyway. Some good, some bad.