12 hedged ETFs to weather a shock rise in the Aussie dollar

The 2000s are often dubbed the “lost decade” for the S&P 500 – not just because of the global financial crisis, but because a surging Australian dollar added insult to injury for local investors.

From 2000 to 2009, the S&P 500 returned -0.95% in USD terms. But for Australians, currency movements turned that into a painful -4% per annum in AUD terms. No wonder many were burned and grew wary of global exposure, reinforcing the infamous “home bias.”

S&P 500 total returns (2000 to 2009)

Yet markets move in cycles. From 2010 to 2019, patient investors were rewarded: AUD-based returns from the S&P 500 averaged around 17% per year - outperforming the 13.5% earned in USD terms.

For investors who didn’t live through that period, this is essential context - because it could happen again.

In this wire, we break down how to think about currency hedging, showcase popular ETFs that offer both hedged and unhedged options, and unpack the key considerations behind the choice.

Hedge or stay unhedged?

When it comes to currencies, no one has a crystal ball.

“In the short to medium term, currencies tend to follow a mathematical random walk,” says Daniel Kelly, CIO at Viola Private Wealth. “It’s almost impossible to predict how they’ll move.”

Ashley Owen, Director at Owen Analytics, agrees. He says the AUD/USD will likely stay near current levels (~64c) unless there’s a sharp global slowdown (pushing the AUD to ~50c) or a renewed commodities boom (driving it back above 70c). Both are possible - but neither is a sure bet.

That said, dumping unhedged positions with embedded gains just because the dollar might rise isn’t wise. Instead, here are three practical approaches:

1. At AUD lows: Tilt new investments toward hedged ETFs.

2. At AUD highs: Lean back into unhedged ETFs.

3. Can’t decide? Try a 50/50 approach between hedged and unhedged options.

4. Tailor it for income: For investors who rely on their portfolio for cashflow, it often makes sense to hedge the income-generating component of international investments. The growth portion, however, can be a mix of hedged and unhedged to balance risk and opportunity.

“If the market crashes and the AUD drops significantly, say below 60c, I’d favour hedged for new contributions, to catch the full rebound,” Owen adds.

In our previous wire, the experts agreed that AUD/USD trading between 65 and 70 cents represents fair value - and outlined the key forces that dragged the Australian dollar down to these levels.

Education

Is now the time to consider currency hedging?

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What are the best way to hedge?

Sophisticated investors can use forward contracts, options, futures, swaps, or multi-currency accounts. But for most, the easiest solution is to buy a currency-hedged ETF or managed fund.

Below, we’ve listed ETF pairs where the core strategy has over $200 million in FUM - a level that generally signals long-term viability.

Hedged ETF STRATEGIES

1. Vanguard – international shares

• Unhedged: (ASX: VGS) – 0.18% fee
• Hedged: (ASX: VGAD) – 0.21% fee

The most popular ASX-listed international shares strategy, investing in 1,300+ developed market companies, ~80% of which are U.S. equities.

2. iShares – Global 100

• Unhedged: (ASX: IOO) – 0.40% fee
• Hedged: (ASX: IHOO) – 0.43% fee

Far more concentrated than VGS/VGAD, this strategy targets the crème de la crème of global large caps.

3. iShares – S&P 500

• Unhedged: (ASX: IVV) – 0.03% fee
• Hedged: (ASX: IHVV) – 0.10% fee

A top pick for Livewire readers in 2024, with potential upside in the ~70% of non-tech S&P 500 names.

4. Betashares – Nasdaq 100

• Unhedged: (ASX: NDQ) – 0.48% fee
• Hedged: (ASX: HNDQ) – 0.51% fee

Offers exposure to 100 of the largest non-financial Nasdaq-listed firms, mostly tech giants.

5. VanEck – International quality

• Unhedged: (ASX: QUAL) – 0.40% fee
• Hedged: (ASX: QHAL) – 0.43% fee

Screens for quality companies globally with strong return on equity, stable earnings, and low financial leverage.

6. VanEck – International small-caps

Unhedged: (ASX: QSML) – 0.59% fee
Hedged: (ASX: QHSM) – 0.62% fee
A diversified basket of 150 small-cap companies across developed markets, screened for quality factors.

7. Aoris – World ex-Australia (active)

• Unhedged: (ASX: BAOR) – 1.10% + 15% performance fee
• Hedged: (ASX: DAOR) – 1.15% + 15% performance fee

Run by Stephen Arnold, Founder of Aoris Investment Management, this active, high-conviction portfolio of 8–15 global stocks is focused on quality and value.

8. Dimensional – World ex-Australia (active)

• Unhedged: (ASX: DGCE) – 0.26% fee
• Hedged: (ASX: DFGH) – 0.36% fee

A long-running quantitative strategy, currently ~72% exposed to the U.S. and underweight tech.

9. Global X – Physical Gold

• Unhedged: (ASX: GOLD) – 0.40% fee
• Hedged: (ASX: GHLD) – 0.35% fee

Offers exposure to gold bullion stored in JPMorgan’s London vaults, with or without currency risk.

Other hedged-only ETFs

• VanEck Global Infrastructure (Hedged) (IFRA - 0.20% fee) -  Offers access to global infrastructure stocks.
• BetaShares Global Healthcare (Hedged) (DRUG - 0.57% fee) - Provides exposure to the world's leading healthcare companies.
• iShares Core Global Property ex-Australia (Hedged) (GLPR - 0.15%) – Invests in real estate investment trusts listed outside the ASX.

Pro picks

Charlie Viola, Founding Partner at Viola Private Wealth, favours Aoris for its value tilt and focus:

“It’s concentrated, focused on good businesses with strong earnings. We’ve used it in most portfolios - it’s done exceptionally well.”

He often pairs Aoris with low-cost core ETFs like IVV.

Ashley Owen, who personally invests over $1 million across 10 ETFs (including VGAD, IHOO, IHVV, GOLD, QUAL), keeps it simple:

“I’m not looking for anything different in a hedged ETF. It’s just a vehicle for themes like U.S. equities, quality, or tech.”

He avoids speculative fads:

“No crypto, no AI, no rare earths. These ETFs won’t double or triple. But they also won’t blow up. They just keep delivering, year after year.”

Nuances of hedged ETF fees and returns

Owen also highlights a nuance many overlook: while hedged ETFs typically charge only slightly more, the real cost of hedging is driven by interest rate differentials.

Historically, Aussie investors earned ~3% p.a. from hedging when local cash rates were higher than those in the U.S. Today, with the Federal Reserve's interest rates higher than the Reserve Bank of Australia's, hedging eats about 1% p.a. in returns - and that will show in the performance figures over time.

"The difference is that the FX hedge return on the hedged version is on revenue account (fully taxable each year as income), but the gains on unhedged version are on capital account (gets CGT discount if/when sold)."

"Ignoring the differences in tax treatment, over the very long run, total returns on hedged and unhedged should even out because FX and inflation/interest rates are two sides of the same coin," he says.

Conclusion 

While no one can predict where the Aussie dollar is headed next, history shows how currency movements can seriously impact portfolio returns. For Australian investors with global exposure, the experts agree that hedging can be a sensible option to manage risk at extreme points of the currency cycle.