Trading Currency Hedge for International Investments

I invest mainly in Australia shares but want to get more foreign
exposure. I have been warned by some people about exchange rate risk.
Due to the rapidly rising Australian dollar, many overseas investments
are doing very badly when converted back into Australian dollars. The
way to fix this is to invest in a fund that engages in currency
hedging. I am told however that investing in a fund that engages in
currency hedging can be bad if the Australia dollar were to
depreciate. So what do I do? Do I hold both hedged and unhedged
international shares to diversify or do I pump all the money into the
hedged fund because, since I already have lots of Australian shares,
depreciating Australian currency will help Australian exports?

 

So far I have gone unhedged into direct shares with some foreign exposure, I am looking at doing my own currency trades. Hedge funds are a bit hit and miss at picking which way to go so I would look hard at how they have performed compaired to the index of where they are investing.

High dollar is good for imports and poor for exporters.
Low dollar is good for exports and poor for imports.

 

"So what do I do? "

Learn how to trade currency

 

I persoanlly am unhedged.. reason cause hedging costs money! Plus having os shares can also protect you against a FALLING australian $$$ If Kevin07 gets in, then this could well be the case!

Just like you diversfy into different australian sectors, ie property shares etc.. why not diversify currency? the ozzie $$$ isnt be all end all

 

To learn to trade forex start at forexfactory. Hedging is slightly more complex than you are probably thinking. Look for a thread called simple hedging strategy for a start.

Some of the threads over there are over 7000 posts... so there is a lot to learn and the people are more than helpful.

 

Hi Norak,

Whoever told you this was not exactly correct.
It depends on two things, first you can use an option, so you have the CHOICE (hence the name OPTION).
If you use a future (forwards) or cfd you don't have an option.

If you invest in a hedged fund and the currency goes down you not have any profit due to currency appreciation. So it's not negative, you just don't make any money from currency appreciation (which is an opportunity loss, not an ACTUAL loss because your locking in an FX rate).

Hope this helps understanding.

Cheers,

Dan

PS This is general information before making any investment or trading decisions speak to an authorised representative of a currency trading company.