A hedged ETF uses forward contracts or swaps to offset the impact of exchange rate moves on the fund's returns. If you hold a EUR-hedged version of a USD-heavy index, the fund mechanically neutralises most of the EUR/USD fluctuation each month. You still own the same underlying assets but your return in euros more closely tracks the local-currency performance of those assets rather than the combined performance of the assets plus the exchange rate.

Not reliably. Hedging changes the risk profile rather than the expected return. Whether it helps or hurts your actual return depends entirely on which direction the exchange rate moves during your holding period. If your base currency strengthens, the hedged version wins. If it weakens, the unhedged version wins. Over long horizons currencies tend to revert, so the expected return difference is mostly just the hedge cost itself.

Hedging is most commonly worth the cost for bond ETFs. For a short-duration bond fund yielding 3–4% per year, a 10% FX swing can completely overwhelm the entire year's return. For a global equity fund with 15–20% annual volatility, a 10% FX swing is a much smaller relative contribution to total risk, so the volatility reduction from hedging is proportionally smaller while the cost is the same.

Hedge effectiveness measures how much of the FX volatility the hedge removes. A perfect hedge removes 100% of FX volatility but is never achieved in practice. Forward contracts are typically reset at month-end based on the fund's asset value at that point. If underlying assets move sharply during the month, the fund temporarily becomes over-hedged or under-hedged until the next reset date — this is why even well-managed hedged ETFs rarely exceed 98% effectiveness. Using 95% is a reasonable conservative assumption for most planning purposes.

For EUR/USD, realised annual FX volatility has typically ranged from 7% to 12% over the past decade, with a long-run average around 8–9%. For EUR/GBP it has been lower, around 6–9%. For EUR/JPY or EUR/EM currencies it can be considerably higher. If you are unsure, 10% is a reasonable starting point for major developed-market currency pairs.

Because nobody can reliably predict currency direction over an investment horizon. This calculator quantifies the risk-versus-cost tradeoff: how much volatility does the hedge remove, and what do you pay for that reduction. Whether FX moves in your favour or against you is a separate question that belongs in your own investment view, not in an objective planning tool.

No. The currency you use to buy an ETF has no effect on the underlying FX exposure. A EUR-listed S&P 500 ETF bought in euros still gives you 100% USD exposure — the fund prices its assets in USD and converts at the prevailing rate. The only things that determine your actual FX exposure are the currencies of the underlying holdings and whether the fund has an internal currency hedge. Buying the unhedged EUR share class and the USD share class of the same ETF results in identical FX exposure for a EUR-based investor.

The TER difference between share classes is fixed, but the total effective cost of hedging fluctuates because hedging uses rolling FX forward contracts, and forward pricing is driven by the interest rate differential between the two currencies. When USD short-term rates were significantly above EUR rates — as from 2022 to 2024 — hedging USD exposure back to EUR added 1–3% of additional drag beyond the stated TER difference. When EUR rates exceed USD rates, the carry works in the hedger's favour and can reduce or eliminate the effective cost. The Extra annual cost input in this calculator should reflect the full hedge cost including carry, not just the TER difference alone.

Time horizon is one of the most important variables. Over short horizons (under 5 years), FX volatility can dominate total returns, making hedging more defensible — especially for bonds or near-term spending plans. Over long horizons (15 years or more), FX movements tend to mean-revert as currencies follow purchasing power parity, so the hedge cost becomes a compounding drag without proportional long-term benefit. For equity investors accumulating over a decade or more, the standard default is unhedged. For retirees drawing regular income in their home currency, partial hedging can reduce short-term variability and protect near-term cashflows.