Hedged vs unhedged: what it really means for your global investments

When you buy shares in overseas companies, two things move your return: how the shares perform, and what the Australian dollar does against the currency they trade in. 'Hedged' and 'unhedged' simply describe whether that currency effect is switched off or left on.

Unhedged: the dollar is part of the ride

With an unhedged fund, your returns move with both the shares and the currency. The quiet benefit: the Aussie dollar often falls during global scares, which can cushion your losses when overseas markets drop. It's a form of natural diversification, and it usually costs less.

Hedged: the dollar is taken out

A hedged fund tries to cancel out the currency swings, so your return tracks the overseas shares more closely. That can mean smoother, more predictable returns — useful for things like global bonds — but it adds a small ongoing cost.

• Global shares: many long-term investors lean unhedged for the currency cushion.
• Global bonds: hedged is common, because currency swings can overwhelm the steady returns bonds are meant to provide.

Neither is 'safer' — they just shift where your risk comes from.

There's no universally right answer. What matters is knowing which one you hold, so a falling dollar is a planned feature, not a confusing surprise.

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