The portfolio currency-hedging decision, by objective and block by block

March 8, 2018


Currency-hedging decisions made at the asset level could lead to an incomplete and even misleading perspective on the relationship between a hedging strategy and portfolio objectives.

This research paper describes a framework that puts the typical asset class approach in a portfolio context, helping you make allocation decisions that potentially align a portfolio's performance with a client's objectives.

Use this paper to:

  • Examine hedging decisions that preserve the risk-and-return characteristics of the underlying assets to help implement a portfolio-level hedging strategy.
  • Analyze the short- and long-term effects of currency exposure on asset returns.
  • Review asset-level currency decisions for the two primary asset classes, fixed income and equities.



  • All investing is subject to risk, including possible loss of principal.
  • Investments in bonds are subject to interest rate, credit, and inflation risk.
  • There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • A fund can be subject to currency-hedging risk, which is the chance that currency hedging transactions may not perfectly offset the fund's foreign currency exposures and may eliminate any chance for a fund to benefit from favorable fluctuations in relevant currency exchange rates. A specific fund with currency-hedging can incur expenses to hedge its currency exposures.


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