Rob Carrick, personal finance columnist for The Globe and Mail, debates the pros and cons of hedging foreign currency exposure in a portfolio. I found several points that were very interesting and relevant to my portfolio:
- The differences between the hedged and unhedged returns in the S&P 500 and MSCI EAFE indices over the past 15 years range from small to negligible.
- There is no need to hedge a diverse index like the MSCI EAFE as it is exposed to a basket of currencies.
- According to money management firm Leith Wheeler, MNCs with global operations have “their own currency hedging program, which can be negated or compromised by another hedge on top of that.”
It seems to me that for truly long-term investors, the benefits of hedging are debatable enough that keeping it simple (i.e. unhedged) is not a bad option.
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2 responses so far ↓
1 Joe // Jan 8, 2006 at 12:26 pm
Are you then contemplating changing your sleepy portfolio XIN shares into EFA?
2 Canadian Capitalist // Jan 8, 2006 at 1:14 pm
Joe: I am leaving it as it is. In my personal RRSPs, I’ve already switched the XIN to EFA (as soon as the foreign content restrictions were removed).
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