Hedged vs Unhedged ETFs: what it really means (and how to choose)
Currency hedging can reduce volatility in your home currency — but it can also add cost, complexity, and false confidence. This guide explains the decision for European investors (EUR base), especially for UCITS ETFs.
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If you’re deciding between a “EUR Hedged” share class and an unhedged one, the fastest way to be right is to pick based on
asset type (bonds vs equities) and time horizon — not on the trading currency shown in the app.
- Bonds: usually hedge foreign currency exposure (especially “core” bond allocation).
- Global equities (long-term): usually stay unhedged (hedging often adds cost without improving long-run return).
- Short horizon (0–5 years): hedging can reduce unpleasant currency swings.
- Trading currency ≠ currency risk. Buying an ETF in EUR doesn’t automatically remove USD risk.
- Hedged means the fund uses FX forwards to reduce currency movement vs your base currency (e.g., EUR).
- Hedging usually helps bonds more than equities. Bond returns are lower, so currency noise dominates.
- Hedging is not free: it adds tracking friction (costs + roll), and it can underperform in some regimes.
- Default: hedge bonds; keep global equities unhedged (unless you have a short horizon or a specific liability).
- ETF trading currency (EUR on the exchange) is not the same as currency exposure.
- Fund base currency (USD/EUR in the factsheet) is mostly accounting.
- What matters: the currency of the underlying holdings and whether the share class is hedged.
- Goal: make returns look more like “local currency returns” (EUR) by removing most FX swings.
- Mechanism: rolling FX forwards (reset periodically).
- Reality: hedging is imperfect. It reduces volatility, not uncertainty. It does not remove market risk.
- Bond expected returns are lower, so FX noise can dominate outcomes.
- People use bonds for stability; unhedged FX can destroy that purpose.
- EUR-hedged global bond ETFs often match the “bond role” better.
- You will spend in EUR in a defined timeframe (down payment, tuition, etc.).
- You can’t tolerate EUR value swings right before you need the money.
- Hedging can reduce the probability of “bad timing” from FX moves.
- Equity risk dominates long-run returns; FX tends to be second-order noise.
- Hedging adds cost and complexity without reliably improving long-run results.
- Unhedged global equities can act like a partial “currency diversification” layer.
- If hedging makes you switch share classes based on macro views, you’ll likely underperform.
- Currency calls are hard. “Feels smart” is not a strategy.
- Pick a rule you can follow for years and stop watching EUR/USD daily.
- Hedge implementation costs: rolling FX forwards has friction.
- Tracking difference impact: the realized performance gap vs index can widen.
- Interest rate differentials (carry): hedging can embed rate differences between currencies into returns.
- Complexity cost: more moving parts = more mistakes (wrong share class, unnecessary switching).
- Define spending currency: if you spend in EUR, evaluate everything in EUR terms.
- Identify asset type: bonds usually hedge; equities usually don’t (for long horizons).
- Confirm the share class: look for “EUR Hedged” in the name/ticker and in the factsheet.
- Compare total drag: don’t stop at TER. Consider tracking difference, spreads, and hedge effects.
- Set a rule: “Hedge bonds, unhedged equities” is a usable default rule.
- Stop switching: changing hedged/unhedged based on recent FX moves is performance suicide.
- Buying EUR trading line and assuming you removed USD risk.
- Hedging equities because EUR/USD “looks scary” this month.
- Mixing hedged and unhedged versions randomly without a rule (you’ll never know what you own).
- Ignoring tracking difference and focusing only on TER.
Disclosure: We may earn a commission if you open an account using our links. You do not pay extra.
Educational content only. Not personalized investment advice.
TL;DR
QUICK DECISION
Hedged vs unhedged: the boring rules that work
DEFAULT
Global equity ETF: usually unhedged. Long horizons can absorb currency noise.
WHERE HEDGING HELPS
Bonds: hedging often makes more sense because bond returns are lower and FX can dominate.
REALITY CHECK
Hedging is not free: costs show up as ongoing drag and tracking difference.
Related: Study: FX drag · Tracking difference vs TER
ON THIS PAGE
1) Currency risk: the only definition that matters
Currency risk is simple: your portfolio value is translated into your spending currency (for most Europeans: EUR). If the assets you own are effectively exposed to USD (or JPY, GBP, etc.), your EUR value can move even when the underlying market is flat.
Common confusion
Practical example (EUR investor)
You buy a global equity UCITS ETF on Xetra in EUR. If the ETF owns mostly US stocks and it’s unhedged, your EUR value still moves with EUR/USD. The EUR trading line does not “remove” USD exposure.
Related: How to read a quote page (what the currency labels really mean).
USE-CASES
When hedged can make sense (and when it’s usually unnecessary)
| Portfolio piece | Typical default | Why |
|---|---|---|
| Global equities (world ETF) | Unhedged | Equity risk dominates; FX adds noise but isn’t the main driver long-term. |
| Bond ETFs (EUR-based investor) | Hedged | Bond returns are lower; FX swings can overwhelm the bond risk/return profile. |
| Single-country/sector equity ETF | Case-by-case | Concentration risk is already high; hedging rarely “fixes” the core risk. |
Practical next: How to choose a world ETF · Fees really matter
2) What “hedged” actually does
A EUR-hedged share class typically uses currency forwards to reduce the impact of FX moves between the holdings’ currencies and EUR. You’re not “avoiding USD assets” — you’re overlaying a hedge on top of them.
The uncomfortable truth
Hedging is a volatility tool, not a return tool. It can make the ride smoother in EUR — but it can also create long stretches where the hedged version lags the unhedged one. That’s normal.
3) When hedging is sensible
MOST COMMON CASE
Foreign bonds (core allocation)
SITUATIONAL
Short horizon or EUR liabilities
Portfolio context: Rebalancing without stress.
4) When hedging is usually wasted
DEFAULT
Global equities (long-term)
BEHAVIOR TRAP
When it makes you tinker
5) The hidden costs of hedging
Hedging is not just “a bit higher TER.” It’s a process: rolling forwards, paying spreads, and living with tracking effects. The cost isn’t always obvious in the headline fee.
6) Checklist: choose the right hedged/unhedged share class
If you want one default rule
EUR investor default: keep global equities unhedged; hedge your bond allocation if bonds are meant to reduce volatility.
Common mistakes to avoid
Related: Beginner investing mistakes.
CLUSTER
Build your ETF decision stack
Stop getting misled by currency labels, tickers, and exchange listings.
The real cost isn’t always the advertised fee.
How to pick a world ETF (MSCI World vs FTSE All-World)
Pick the wrapper you can actually buy as EU/UK retail.
Reduce friction: funding, FX workflow, and clean execution.
Avoid hidden execution costs that quietly compound.
Reduce permanent drag before chasing returns.
FAQ
Is an ETF’s “base currency” the currency risk?
Usually no. The base currency is often accounting. Currency exposure mostly comes from the underlying holdings’ currencies and whether the share class is hedged to your spending currency.
If I buy the ETF in EUR, am I protected from USD moves?
Not automatically. EUR trading currency does not remove exposure. If the ETF owns USD assets and is unhedged, EUR/USD can still move your EUR value.
Should I hedge global equity ETFs as a EUR investor?
For long horizons, most investors keep global equities unhedged. Hedging can reduce EUR volatility but often adds drag and complexity without reliably improving long-run outcomes.
Should I hedge global bond ETFs?
Often yes for a “core bond” role. Bonds are usually held to stabilize the portfolio; unhedged FX can overwhelm that stabilizing function.
Does hedging remove all currency risk?
No. Hedging reduces most FX moves relative to your base currency, but it’s not perfect and it has costs. You still have market risk, and the hedge can create tracking effects.
What’s the simplest rule I can follow?
EUR investor default: hedge bonds (if bonds are meant to reduce volatility), keep global equities unhedged, and stop switching based on FX headlines.
Want fewer execution mistakes (currency + share class confusion)? Use a broker that handles multi-currency cleanly, then keep the workflow consistent.
Disclosure: We may earn a commission if you open an account using our links. You do not pay extra.
Want to compare hedged vs unhedged tickers quickly? Use TradingView watchlists to track both share classes side-by-side — then execute at your broker.
Disclosure: We may earn a commission if you subscribe using our link. You never pay extra.
Educational content only. Not personalized investment advice.
Confirm fund details (share class hedging, costs, and docs) on the official factsheet/KID and with your broker before buying.