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What does currency hedging (FX hedging) cost?

For our True Wealth optimized investment strategies for a global portfolio, the TER – including currency hedging – is between 0.10 and 0.15% per year.

The costs of currency hedging are low. They arise from the regular rolling of futures contracts (FX swaps) approximately every three months. The resulting bid/ask spreads of the futures contracts are only a few basis points (hundredths of a percentage point) for the most important currencies (including CHF, USD, EUR, GBP, JPY).

A side effect of currency hedging is the neutralization of the interest rate differential between the foreign currency and the domestic currency (Swiss franc). This is in the nature of things, otherwise an arbitrage opportunity would arise and one could profit from the higher interest rates of the foreign currency without currency risk. For example, no investor would buy more Swiss Confederation bonds. It is often claimed that the neutralization of the interest rate differential represents an additional cost factor, but strictly speaking this is not a cost factor.

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

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