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Vanguard seems to be of mixed minds on hedging currency. While it is adamantly in favor of hedging for bonds, it suggests that hedging equity reduces volatility but at a cost of absolute performance. I agree with this equity assessment.
[W]e would expect the long-run returns of a hedged foreign equity portfolio to be lower than the long-run returns for the same unhedged portfolio, all other things being equal, with any hedging costs driving a wedge between the two returns[]. If an investor is willing totolerate this modest ex ante return differential, then we would frame an investor’s hedging decision in terms of portfolio risk.
Note that Vanguard (for the purposes of this paper) defines risk as standard deviation. Which would explain why its Global Minimum Volatility Fund (VMVFX) is currency hedged.
Comments
Regards,
Ted
https://pressroom.vanguard.com/content/press_release/Press_Release_Itnl_Dividend_Oriented_Funds_092215.html
https://personal.vanguard.com/pdf/ISGCMC.pdf
Note that Vanguard (for the purposes of this paper) defines risk as standard deviation. Which would explain why its Global Minimum Volatility Fund (VMVFX) is currency hedged.