Glossary · Risk
Currency hedging
A way for a fund to reduce the effect of exchange-rate moves between the currencies of its holdings and the pound.
A fund that owns US shares is exposed to the dollar: if the dollar falls against the pound, a UK holder loses value even when the shares themselves have not moved. A pound-hedged share class uses currency forward contracts to offset most of that effect.
Hedging has a cost, which depends largely on the gap between interest rates in the two currencies, and it is rarely exact. It also gives up the gain when the foreign currency rises against the pound.
Hedged and unhedged classes of the same fund hold the same investments but can show quite different returns over the same period. On this site a hedged class is labelled “£ hedged”.
Related terms
- Share classA variant of the same fund with its own charges, currency or income treatment — and its own ISIN.
- VolatilityHow much a fund’s returns vary around their average, usually stated as an annualised standard deviation.
- Total returnThe return of an investment including income (dividends or interest), not just the change in price.
More terms on risk
Definitions describe how a term is used on Fundology. This is information, not advice.