Hedging - ETFs

Why don’t people seem to be that concerned about owning Hedged ETFs?

I guess it’s hard to say what’s going to happen next with the currencies. Which ones will go up. The ones that will go down. And when.

But it’s important to have options to choose from. Now, shall I buy the SP500 hedged or in dollars. Who will win the battle between the dollar and the pound? I have no idea

If one has no idea where the currency is going then why not hedge. That way you are replicating the return of the index you actually want to track.

I find this as a valid question as “why hedge”. Unfortunately I can’t offer an answer. What I can say is I’m not on the selling side for the foreseeable future. Even if the future brings a mighty crash, as long as I have work that provides income to sustain myself I’m not worried about currency fluctuations.

In the limit maybe would buy 50/50 hedged and non-hedged just to have the feeling I’m trying to mitigate things when in reality I’m perfectly aware I don’t have the slightest idea of what on Earth is going on. If I knew I would trade Forex.

I’m all for more investment options on the platform. Diversification can appeal to different people. Hedged may be one of them. Others like sharia compliant. Bring them. So long they fit Freetrade’s ethos, and I can’t see why they wouldn’t, bring them

I get it but if you don’t know then why not just hedge and then you’re safe. The worst case is you miss out on some upside. Whereas, otherwise, the GBP could devalue over time against the USD and when you come to retire your portfolio is not worth as much.

The keyword is “could”.

I’m setting a dividend paying portfolio: UK, US, Europe and China at the moment; in time other regions will be added. Principal is not for sale. Dividends to be 100% reinvested until age of retirement. Upon reaching age of retirement dividends are to be reinvested between 20% and 50% to keep principal growing, now at a slower pace. Remainder dividends to support living costs and give away.

I would very much like to learn when to Invest and/or top up a position in a hedged ETF versus a non-hedged. Any reading materiais you may recommend?

The hedged ETFs I’ve seen usually have higher fees, I guess associated with the currency forward contracts. Also, fluctuations tend to even out over long term of 20+ years, which ironically is the case for every major currency pair except GBPUSD. I am a fan of hedged ETFs though, specially when you can lock a good rate, like a mortgage or bond.

Fluctuations don’t even out over the long run. There is not just simple volatility in the FX markets but large structural changes which are hard to anticipate.

I think there is enough risk out there without adding in currency fluctuations. I believe that all ETF investments should be hedged unless you are expanding to deliberately gain foreign currency exposure (which most people do by accident without potentially thinking through the impact).

Yeah I agree, forex is not just a simple wave you can anticipate and I see the great benefit of hedged ETFs. But out of the 7 major pairs the change over the last 20 years is approx: EURUSD -3.8%, USDJPY +0.5%, GBPUSD -17.8%, AUDUSD +2.8%, USDCHF -42.1%,NZDUSD -6.8%, USDCAD -7.4%. So apart from swissy and pound, there is evidence to say they even out at some point long term. And if you invest in different markets; US, Europe, UK, Asia, EM you are basically hedging yourself. For instance, I know over my 10 years investing, my currency gain/loss is only +0.56% (0.06% per year) even with the pound going from $1.6 to $1.3 (-18%).

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I’m not expanding to deliberately gain foreign currency exposure, therefore I may be getting the impacts by accident. What I’m doing is to get exposure across regions in multiple sectors simultaneously. I could achieve the same thing with just one All World ETF. But I’m not into it. I rather top up monthly and try to average down as I go. Weighing will fluctuate but I’m ok with it.