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To Hedge or Not to Hedge

Hedging currency is the process of ensuring that currency movements are not reflected in the underlying returns of an investment held in a different currency to your own.  If you own an asset priced in a foreign currency then the value of that asset will fluctuate both from the movement in the price of the aset in its own currency, and also from the relatively movement between the base currency of the asset, and your own base currency.  This can be positive or negative.  Whether or not to hedge global investment returns is an ongoing question for investors and their advisers.  At Walden Capital we have the view that in general terms it is sensible to hedge fixed income returns, but not hedge equity returns.  Here one of the Dimensional Issue Briefs explains part of why we reached this conclusion.

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by John Stirling