Hedged vs. Unhedged ETFs — The Meaning of the '(H)' Label
You are choosing a U.S. stock ETF, and even though they hold the same index, one has '(H)' attached after its name. This single letter can sharply divide your returns. What is the difference?
(H) is the mark of 'currency-hedged'
The '(H)' after an ETF or fund name means 'Hedged'—that is, the 'currency-hedged type.'
The hedged type (H) is a product that eliminates the impact of exchange-rate fluctuations using forwards and the like that we learned earlier. So no matter how the won–dollar rate moves, it tracks only the performance of the underlying asset (e.g., a U.S. index).
The unhedged type (the one without H) reflects exchange-rate fluctuations directly. Even if a U.S. stock is unchanged, the won valuation rises when the won weakens (the rate rises) and falls when the won strengthens.
In other words, even holding the same index, with (H) it becomes 'pure asset return,' and without it, 'asset return × exchange-rate effect.'
Source: UBS 'Understanding ETF currency hedging.' The (H) label may differ slightly by manager and product, so check the product prospectus.
Hedging costs money
Currency hedging is not free. Two costs attach.
First, the management fee tends to be higher. According to one survey, currency-hedged ETFs were roughly 0.30–0.40% a year, while unhedged types of a similar market were under 0.10% a year in some cases.
Second, and more important, is the 'hedging cost' itself. This cost comes mainly from the interest-rate gap between the two countries (see interest rate parity). If the domestic rate is lower than the counterpart country's, returns tend to be shaved by that difference when hedging.
So it is a mistake to think 'since exchange-rate risk is eliminated, it is unconditionally safe and profitable.' You pay a cost as the price of buying safety (removing exchange-rate fluctuation).
Source: Morningstar 'Do Currency-Hedged ETFs Have Merit for the Long Term?' The actual hedging cost varies by period, currency, and rate gap.
When is each more advantageous
The answer is 'it depends on the situation.'
In periods when the won weakens (the rate rises), the unhedged type is advantageous. This is because the exchange-rate gain is added to the asset return. For example, even if a U.S. stock is unchanged, if the won weakens 10%, the unhedged type's won valuation rises by that much.
Conversely, in periods when the won strengthens (the rate falls), the hedged type protects against losses. With the unhedged type, even if the asset rises you can be shaved by the exchange rate.
The problem is that no one can guess future exchange rates. So rather than 'betting on exchange rates through hedging or not,' it is wise to choose according to your investment purpose. If you want to see purely the asset performance, the hedged type; if you accept exchange-rate risk and also want the currency-diversification effect, the unhedged type suits you.
The reason 'The Return of Almost Everything' shows the exchange-rate effect separately is precisely to help with this choice.
This article explains the characteristics of product types and does not recommend any particular ETF or hedging direction. It also does not predict future exchange rates.
常见问题
Q. For long-term investing, which is better—hedged or unhedged?
Over the long run, exchange rates tend to rise and fall repeatedly and offset to some degree, so there is a view that the long-term performance of hedged and unhedged types can become similar. However, if hedging costs pile up each year the hedged type can become disadvantageous, and conversely, if the exchange rate moves sharply in one direction the results diverge greatly. There is no single answer; you must consider both cost and your own risk tolerance.
Q. Does hedging completely eliminate exchange-rate risk?
In theory most is eliminated, but not perfectly. Hedges are usually renewed at fixed intervals, and if the asset value changes in the meantime, a 'hedge error' can arise where the hedge size and actual exposure become misaligned. There also remains the point that hedging costs eat into returns. You should remember that it is not 'completely risk-free.'
📋 结果基于历史数据计算,过去的收益不代表未来的收益。
📋 本服务旨在帮助理解投资、供教育之用,并非投资建议。