![]() ![]() An investor purchases shares of a hedged share class in the hedging currencyĢ. Convenience: Hedge share classes may allow investors to purchase fund shares in their preferred currencies instead of having to pay for shares in the fund’s base currency.ġ.Reduce complexity: Administering a currency hedging programme can be complex, and is something many investors would prefer not to do themselves.Minimise unwanted exposure to a foreign currency: Investors often seek to gain exposure to assets outside their local markets for the diversification benefits, but do not wish to expose themselves to additional currency risk that these assets may bring.WHAT ARE SOME REASONS INVESTORS USE HEDGED SHARE CLASSES? A variety of hedging approaches, including multi-currency hedging and partial hedging, can be used to pursue a variety of different goals, but this note will focus on the most common form of hedged share classes. For example, a UK-based investor seeking to gain exposure to the US bond market, but wanting to minimise exposure to exchange rate fluctuations between the US Dollar (USD) and the British Pound (GBP), could purchase the GBP-hedged share class of a US bond fund. ![]() Specifically, they aim to reduce the impact of exchange rate fluctuations between the fund’s base currency and the investor’s preferred currency of exposure.Īt a high level, a fund investor’s returns can be broken out into the below components (Figure 1). The goal of a hedged share class is to minimise the final part of that equation. Hedged share classes seek to minimise, but cannot completely eliminate, a fund investor’s currency risk. While hedged share classes can be a powerful part of an investor’s toolkit, they are designed to minimise, but not completely eliminate, the risk of currency fluctuations. Where available, they can allow investors to effectively make independent decisions on which assets they want exposure to, and which currencies they want exposure to. Hedged share classes can be a useful tool for mutual fund investors to gain exposure to assets denominated in foreign currencies, without taking on the full accompanying currency risk. ![]()
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