Presentation: Pros and cons of currency hedging

To make it easier for you to prepare materials for clients, we’ve developed these slide selections on currency hedging. We know you’ll want to customize them and add elements specific to your client, so we’re providing a Word file to make that easier.

Enjoy, and we hope this offering helps enhance your client meetings.

SLIDE 1

Exchange rates can improve or reduce investment returns when you convert them back into your home currency.

SLIDE 2

Using a currency hedge on international investments can limit those fluctuations.

SLIDE 3

The good thing about hedging is it reduces any drop in your in-pocket returns that would result from currency conversion.

SLIDE 4

The downside is you sacrifice the bonus added onto your returns in cases where currency conversion rates are in your favour.

SLIDE 5

Once you decide if hedging is right for you, the next step is determining whether you do it with your stock or bond investments through currency-hedged funds.

SLIDE 6

Currency fluctuations can make bonds – an otherwise stable investment – significantly volatile.

SLIDE 7

Equities, on the other hand, already have high volatility, so the impact of adding currency volatility is less pronounced than in the case of bonds.

SLIDE 8

For international stocks, the benefit of hedging is smaller, while the costs remain the same.

SLIDE 9

By contrast, the benefits of hedging currency risk in international bonds generally outweigh the costs.

SLIDE 10

So, overall, hedging currency risk has much greater impact when investing in bonds, as opposed to stocks.

SLIDE 11

But, if foreign bonds represent a small percentage of your portfolio, the cost of hedging may outweigh any benefit.

SLIDE 12

Hedging costs can include compensating currency dealers for facilitating hedging transactions, custodian banks for recordkeeping and investment managers for maintaining the hedge.