Currency hedging often leads to high costs for investors. Besides direct costs like higher product fees (TER), there are also “hidden” costs. The fund uses derivatives purchased from banks for hedging, and both these derivatives and the transactions cost money.

However, the largest portion of the cost is economic. Investors pay the interest rate differential between their “home currency” and the currency they are hedging against. For example, if a CHF investor wants to hedge against the USD, this currently costs 3-4% per year (US interest rate: 4.5%, Switzerland: 0%). For a USD hedge to be “worthwhile”, the USD would therefore have to lose about 4% against the CHF annually.