TY - JOUR T1 - Why Currency-Hedge Foreign Developed Equities? JF - The Journal of Investing SP - 125 LP - 129 DO - 10.3905/joi.2014.23.3.125 VL - 23 IS - 3 AU - Jeremy Schwartz AU - Christopher Gannatti Y1 - 2014/08/31 UR - https://pm-research.com/content/23/3/125.abstract N2 - When investors allocate to foreign stocks, they typically assume a secondary currency exposure on top of their local equity market returns and usually do so without having a strong conviction in the direction of the underlying currency. The authors believe the reason why investors fail to hedge their currency exposure is the result of a few common myths. In this article, they address three of the most common myths: 1) It is expensive to hedge foreign currencies; 2) currencies are a good hedge against purchasing power; and 3) currency returns are a wash in the long run. The authors explain why they believe these myths cause investors to take on additional currency risks, which depending on their currency outlook, may lead to suboptimal allocation decisions. The authors argue that investors who do not have strong conviction in the potential direction of the underlying currency should hedge at least a portion of their exposure to these currencies. They also discuss why the U.S. dollar may be entering a longer secular trend period where it increases in value against other major developed currencies. This view is based on changes unfolding in relative central bank policies, as well as likely changes in relative interest rate policies developing among Europe, Japan, and the United States. Ultimately, if this view proves accurate, the case for hedging foreign currency exposure against the dollar may become even more powerful.TOPICS: Developed, currency, derivatives ER -