Navigating Currency Hedged ASX ETFs: Hedged or Unhedged Funds

ASX ETFs offer diversification and exposure to international markets like the S&P 500 Index and NASDAQ-100 Index. Currency-hedged ETFs reduce the impact of exchange rate fluctuations on investment returns. Non-hedged ETFs are affected by both the performance of the underlying index and the AUD/USD exchange rate. Hedged ETFs use derivatives to keep returns in AUD terms only reflecting the S&P 500's performance, unaffected by currency fluctuations. The choice between hedged and non-hedged ETFs depends on personal preference and risk appetite. Some popular hedged ETFs include Betashares Nasdaq 100 ETF – Currency Hedged and Vanguard MSCI Index International Shares (Hedged) ETF.

Exchange-traded funds (ETFs) have become a popular choice for investors seeking diversification and exposure to international markets. Among the various ETFs available, those that track the S&P 500 Index and NASDAQ-100 Index are particularly noteworthy. However, investors must decide whether to opt for hedged or non-hedged ETFs, each with its own set of advantages and disadvantages.

Currency-Hedged ETFs

Currency-hedged ETFs are designed to mitigate the impact of exchange rate fluctuations on investment returns. These funds use derivatives to keep returns in AUD terms only, reflecting the performance of the underlying index without the influence of currency fluctuations. This can be particularly beneficial for investors who are risk-averse or prefer a more stable investment experience.

One of the popular hedged ETFs is the Betashares Nasdaq 100 ETF – Currency Hedged [NUMBER:1]. This ETF provides exposure to the technology powerhouses of the NASDAQ-100 Index while reducing the impact of currency exchange rates. Another notable hedged ETF is the Vanguard MSCI Index International Shares (Hedged) ETF, which offers broad international exposure with currency hedging [NUMBER:1].

Non-Hedged ETFs

Non-hedged ETFs are affected by both the performance of the underlying index and the AUD/USD exchange rate. These funds do not use derivatives to offset currency fluctuations, which can lead to more volatile returns. However, they also offer the potential for higher returns if the AUD strengthens against the USD.

Investors should consider the iShares S&P 500 ETF (ASX: IVV) for non-hedged exposure to the S&P 500 Index. This ETF provides direct access to the 500 largest companies in the United States and has historically been a strong long-term performer [NUMBER:1].

Choosing Between Hedged and Non-Hedged ETFs

The choice between hedged and non-hedged ETFs depends on personal preference and risk appetite. Hedged ETFs offer a more stable investment experience, reducing the impact of currency fluctuations. However, they may also have slightly higher management fees due to the cost of hedging strategies. Non-hedged ETFs, on the other hand, can offer higher potential returns if the AUD strengthens against the USD but come with the added risk of currency fluctuations.

Conclusion

Both hedged and non-hedged ETFs have their merits and can be valuable additions to an investor's portfolio. The key is to understand the risks and potential rewards associated with each type of ETF and choose the one that aligns best with your investment goals and risk tolerance. By doing so, you can effectively navigate the ASX ETF landscape and make informed decisions that support your long-term financial objectives.

References

1. [https://www.fool.com.au/2025/08/09/5-high-quality-asx-etfs-to-buy-and-hold-for-20-years/](https://www.fool.com.au/2025/08/09/5-high-quality-asx-etfs-to-buy-and-hold-for-20-years/)
2. [https://www.ainvest.com/news/ioo-etf-offers-diversification-ideal-international-exposure-2508/](https://www.ainvest.com/news/ioo-etf-offers-diversification-ideal-international-exposure-2508/)