Oct 15, 2026 · 31 min
Listen from 21:19
Listen at 21:19
Currency hedging reshapes global returns for Australian investors
Hedging explained, is it worth the fees and when it makes sense with Cameron Gleeson
The choice between hedged, unhedged and blended exposure can materially change international investment outcomes, especially across different assets and time horizons.
- 1Currency movements can materially alter Australian-dollar returns even when overseas share prices remain unchanged.
- 2Forward contracts reduce foreign-exchange exposure, but hedging decisions still depend on asset class, objectives and investment horizon.
- 3Because exchange rates are difficult to predict, portfolio construction generally matters more than repeatedly adjusting a hedge ratio.
Don't miss
Cameron Gleeson explains why hedging may matter more for bonds, where currency volatility can overwhelm relatively modest income returns.
The brief
Australian investors in international shares take two risks at once: the overseas assets and the exchange rate that converts their returns back into Australian dollars.
Cameron Gleeson of BetaShares explains how hedged ETFs use forward contracts to offset currency exposure, even when hedged and unhedged funds own the same global shares.
The central choice is not a forecast about the Australian dollar. It depends on the asset class, portfolio objective and time horizon, with currency often more consequential for defensive assets such as bonds.
Gleeson argues that blending hedged and unhedged exposure can be sensible, particularly when investors want some foreign-currency protection during market stress without committing to one outcome.
The episode closes by tracing the Australian dollar’s drivers and reviewing ETF performance across currency environments, showing that relative results largely followed whether the dollar strengthened or weakened.
What was said on this episode
24 statements · 17 positive · 3 negative · 4 neutral
Australian-dollar returns depend on both foreign asset performance and exchange-rate movements.
“if that basket of stocks appreciates in US dollars, then hopefully you're going to see a positive return. But the other thing to consider is, well, what's the value of that US dollar return in Australian dollars?”
Listen at 2:08
Australian-dollar depreciation increases the Australian-dollar value of unchanged US assets.
“if the Australian dollar depreciates or falls in value. Essentially, what it means is your $100 of US assets are now worth $150 in Australian dollar terms. So it's actually good news.”
Listen at 3:24
Currency hedging offsets foreign assets’ Australian-dollar losses when the Australian dollar appreciates.
“currency hedging, that's created a profit, and that means that overall... you're trying to negate that fall in the value of those assets when they're transposed back to Australian dollars.”
Listen at 5:54
Currency-hedged funds use forward contracts to manage foreign-exchange exposure.
“The fund manager will use derivatives, which are called forward contracts.”
Listen at 6:28
Currency movements are harder to predict than equity-market movements.
“it's very hard to predict. I think harder to predict than what equity markets are going to do.”
Listen at 8:04
The Australian dollar typically falls against the US dollar during short-term market stress.
“Typically on those short-term timeframes, you tend to see that the Australian dollar will fall versus the US dollar.”
Listen at 9:05
Short-term crisis protection can justify holding some foreign exposure unhedged.
“that can be a reason to have at least some of your portfolio unhedged.”
Listen at 9:22
Long currency trends justify considering partial currency hedging.
“a good reason to consider currency hedging at least for part of your portfolio to mitigate that risk”
Listen at 10:40
A US-dollar loan offsets the currency exposure of a geared US-equity ETF.
“the way that that's funded is a US dollar loan. So it's due to the mechanics of that ETF. If we think about getting geared exposure, if we fund that with a US dollar loan, it sort of offsets the currency exposure of that ETF.”
Listen at 11:10
Remaining entirely unhedged increases outcome variability from currency movements.
“the outcome of remaining entirely unhedged can have more variability depending on what that currency does.”
Listen at 12:39
Blending hedged and unhedged exposure can balance portfolio trade-offs.
“having a foot in each camp makes a lot of sense.”
Listen at 13:01
Cam uses an ETF with 30% of global equities currency hedged.
“it has a balance of 30% of the global equities being currency hedged. And so for me, that makes sense, having that balance.”
Listen at 13:52
Global bond funds are generally currency hedged to prevent currency volatility dominating returns.
“you don't want currency to really dominate your overall return. So I think we typically see that almost all global bond funds are currency hedged.”
Listen at 14:56
Australian investors should generally hold gold with currency hedging.
“I think that the best way to hold gold is to think of it as a hedge against the US dollar selling off. And therefore, currency edge gold makes a lot of sense to me.”
Listen at 16:29
For a six-month horizon, Cam would probably remain unhedged.
“if that was my time horizon, all honesty, I'd probably be just unhedged”
Listen at 17:08
Seven-to-ten-year investors should include some currency-hedged exposure.
“if my time horizon is anywhere around seven to 10 years, then I'd definitely be looking to have some currency hedge exposure in there.”
Listen at 17:32
Over very long horizons, investors may be able to tolerate unhedged exposure.
“if I go back over say 30 years, the Australian dollar is basically where it was 30 years ago. You know, perhaps in that scenario, you can afford to be unhedged.”
Listen at 18:10
Holding both hedged and unhedged exposure is reasonable because currencies are difficult to predict.
“There is absolutely nothing wrong with having a foot in each camp because, frankly, it is very difficult to predict currencies”
Listen at 19:35
Equity selection is the main driver of long-term investment returns.
“the main driver of your returns is going to be what equities or share markets I'm invested in.”
Listen at 19:52
The Australian dollar may return to similar levels over a 30-year period.
“over the long term, it may well just all pan out to be the same after 30 years as it has been over the last 30 years.”
Listen at 21:12
Currency-hedged global equities outperformed during recent Australian-dollar appreciation.
“over the last, say, two or three years, we've actually seen that currency hedged global equities have outperformed as our dollar is appreciated.”
Listen at 27:10
Unhedged global equities outperformed when the Australian dollar weakened.
“The Australian dollar weakened. And what that meant was you were definitely better off holding unhedged global equities as a result.”
Listen at 27:40
A balanced hedged-unhedged approach can suit seven-to-ten-year investors.
“having that balanced approach if you are investing for a seven to ten year time horizon having a foot in both camps it can make a lot of sense”
Listen at 28:00
There is no universally correct hedging ratio; the choice is subjective.
“In truth, it is subjective. There isn't actually a right number. It's all a matter of judgment”
Listen at 29:00
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.