Hedged vs unhedged funds: separate the currency effect
Read the share-class policy and underlying exposure before treating a fund’s trading currency as a currency hedge.
The fund label is only the starting point
An exchange-rate chart measures a currency pair. A fund holds assets and can also apply a hedging policy. Before comparing returns, identify the assets, the currency in which you measure your result and the exact share class you own.
Vanguard’s share-class explanation describes hedged classes as using financial contracts to reduce currency exposure, while an unhedged class remains exposed to relevant currency movements. Read the specific product documents rather than inferring the policy from a price displayed in GBP, EUR or USD.
Separate the two effects in an example
Assume an asset rises 8% in its local currency. For an unhedged holding, combine that price move with the change in the home-currency value of one unit of foreign currency. This is simplified arithmetic before income, trading costs, fund charges and tax.
| Foreign-currency value in home currency | Combined calculation | Price return at home |
|---|---|---|
| Falls 10% | 1.08 × 0.90 − 1 | −2.8% |
| Unchanged | 1.08 × 1.00 − 1 | +8.0% |
| Rises 10% | 1.08 × 1.10 − 1 | +18.8% |
The middle row isolates the assumed asset move; it is not a promised hedged return. An actual hedged share class must be assessed using its own policy and reported performance. Hedging currency exposure does not remove the asset’s market risk.
Compare like-for-like records
Use the same measurement currency and dates. Check whether figures include reinvested income and charges, and whether you are comparing different share classes. A cash converter cannot reproduce a fund’s total return or its hedge transactions.
The SEC’s international-investing guide treats exchange-rate changes and currency controls as distinct risks alongside changes in asset prices. A source explaining those risks is not an endorsement of a particular fund or a forecast.
Use currency history for context
Explore EUR/USD or GBP/USD to understand the direction and scale of an exchange move. Then return to the product’s own documents for its holdings, hedging policy, costs and performance calculation. A historical currency shortlist is a reading aid, not an asset allocation.
Explore the examples
Sources and scope
Sources consulted 2 Nov 2026 for the explanations above. The numerical scenarios are the directory’s own illustrative arithmetic, not provider offers or historical investment returns. Prepared with AI assistance; no independent professional financial review is claimed.