Hedging foreign investment decisions

Greg Cooper

An investor’s starting point for foreign investments should be from a hedged position, according to Schroder Investment Management Australia chief executive Greg Cooper.

The principal reason for this, Cooper explained, is that many foreign market investors fail to realise the high level of currency exposure and volatility they are taking on.

“Most people, when they invest overseas, are looking for diversification of market risk, but forget that in diversifying market risk, if they invest in an un-hedged strategy, they pick up currency risk at the same time,” Cooper said.

“Our view is that those are two separate decisions and one should try to separate the currency risk decision from the market risk decision.”

According to Cooper, hedging is an effective strategy to achieve such a result.

“[However,] for advisers this has been quite difficult because there haven’t been a large number of hedged offerings for global equities — most of the offerings in the adviser space are un-hedged offerings, and that’s one of the reasons why, when we launched our Global Active Value fund 18 months ago, we offered it initially in a hedged format rather than in an un-hedged format.”

Cooper said that unless advisers had clients with fairly large account balances and could approach a bank to do the hedging for them, then they should consider investing in a hedged strategy rather than an un-hedged strategy.