What does currency hedging (FX hedging) cost?

For True Wealth’s optimized investment strategies for a global portfolio, the TER – including currency hedging – is only 0.10% to 0.15% per year.

The actual cost of hedging is minimal: it arises from the quarterly rolling of forward contracts (FX swaps), where the bid/ask spreads for major currencies such as CHF, USD, EUR, GBP, and JPY amount to only a few basis points.

The fact that currency hedging neutralises the interest rate differential between foreign currencies and the Swiss franc is sometimes mistakenly perceived as a cost factor. Economically speaking, however, this is not an expense, but rather the market-driven elimination of an arbitrage opportunity: were this not the case, higher foreign interest rates could be captured entirely risk-free – and no investor would buy Swiss Confederation bonds anymore. The interest rate adjustment is therefore a market-logical consequence of risk reduction, not a financial loss.

For more information on currency hedging, the associated costs and how we deal with it, please see our video podcast.