Hedging currency risks towards US stocks
I have 35% of my portfolio in US stocks and base currency is AUD. Given your best guess is AUD up and USD down are there any strategies that minimise FX loss.
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Answer
Hi Kevin,
One easy way to hedge a US equities portfolio against a rally in the $A is with an ETF. One example is the BetaShares Strong ETF (AUDS):
- AUDS generally expects to generate a positive return of between 2% and 2.75% for a 1% rise in the value of the Australian dollar against the U.S. dollar on a given day (and a corresponding negative return when the Australian dollar falls in value on a given day). – its current gearing is 2.21x.
- Hence at the moment to hedge a $100k portfolio, investor would need to buy ~$45k worth of the AUDS ETF.
- This ETF is liquid and offers easy access on the ASX where its traded like any ETF/stock.
Its important to recognise that the ETF incurs a Mgt. Fee of 1.38% pa and will reduce your returns if the $A goes nowhere, or indeed falls as it has over the last few years
