5 popular ASX ETFs to protect against a rising AUD

In the late 2000s and early 2010s, the financial gods bestowed upon Australian investors a rare double blessing: a falling Aussie dollar and attractively priced US equities.

Those who bought unhedged global ETFs didn’t just ride America’s bull market - they enjoyed a powerful currency tailwind. As the AUD slid, offshore gains were amplified when translated back into Australian dollars.

The result was staggering. Investors who bought unhedged S&P 500 ETFs in 2009 and held through to today generated cumulative capital returns of roughly 740%, compared with about 642% for hedged investors. Ironically, Australians made more from the S&P 500 than many local American investors did!

It was one of the great currency-assisted wealth-building periods of the modern era. But markets have a way of restoring balance. What the financial gods giveth, they can also taketh.

After tumbling to near 60 US cents during last year’s Liberation Day turmoil, the AUD has rebounded to around 71 cents. History shows that once the Aussie starts climbing, it can rise higher - and last longer- than expected. If that happens again, unhedged global returns could face a meaningful headwind.

In this wire, we explore where the AUD may head next, what it means for portfolio construction, and five popular hedged ETFs designed to reduce currency drag.

Where the AUD may be heading

The macro backdrop has shifted in favour of the Australian dollar, with the currency spiking to a three-year high.

NAB’s FX team recently pointed to four drivers of AUD/USD strength: 

1. A repricing of RBA cash rate expectations
2. Rising commodity prices
3. Improved global risk sentiment
4. China’s central bank seeking a stronger yuan versus the greenback

As a result, NAB expects the AUD to climb to 72 cents by mid-year and 73 cents in the second half, with the possibility of an overshoot toward 75 cents - though not one they believe will last.

“Looking beyond 2026 … modest upturn in the USD as per forecasts is predicated on evidence the Fed easing cycle is complete and a potentially heroic assumption of a more benign, or less unpredictable, US administration policy backdrop post the November mid-terms,” NAB’s FX strategists Ray Attrill and Rodrigo Catril wrote.

AMP’s Deputy Chief Economist Diana Mousina adds that the US dollar is weakening because “investors are concerned that the US is no longer a safe place to park money” amid erratic policymaking, including tariffs.

On a purchasing power parity basis, AMP estimates fair value for AUD/USD around 72 cents. However, Mousina notes the currency has a tendency to overshoot once momentum builds, with a possible move toward 75–80 cents before reverting.

A simple calculation shows that if the AUD rises from 71c to 80c, it would shave roughly 11% off an unhedged S&P 500 ETF - assuming the index itself does not move.

“Investors may need to look more closely at hedging strategies, as a stronger $A will suppress global returns in $A terms,” Mousina says.

Go halfsies?

Andrew Wielandt, Director at DP Wealth Advisory, agrees that an overshoot is possible and began increasing hedging exposure in client portfolios over the past 18 months - particularly when the AUD collapsed toward 60 cents during last year’s tariff-driven volatility.

He says the trigger came when Trump’s reciprocal tariffs sent risk assets tumbling and the AUD sharply lower, prompting a significant shift from the iShares S&P 500 ETF (IVV) to the hedged version (IHVV).

“We overall remain around 50% hedged and 50% unhedged,” he says.

Wielandt notes the long-term average for the AUD is around 74 US cents, suggesting the currency is no longer deeply undervalued. Further rises in Australian rates relative to US rates, combined with firm commodity prices, could provide support.

However, he also stresses the AUD remains a “risk currency.”

“If we have some significant market/geopolitical event, you will see the AUD being sold off and moves to safe haven currencies so that's why we are 50/50 hedged and unhedged,” he says.

IHVV remains his preferred hedged vehicle, as he stays positive on the outlook for America’s 500 largest companies despite political noise.

5 of the most popular hedged ETFs (ranked by size)

Below, we leverage ASX data to list the five most popular currency-hedged ETFs in Australia by funds under management and compare their one-year performance against their unhedged counterparts to illustrate the recent impact of a rising AUD.

Over longer periods, however, unhedged strategies have generally outperformed, reflecting the structural decline in the Australian dollar over the past decade.

Hedged ETFs are typically only marginally more expensive - often less than 10 basis points above their unhedged equivalents.

1. Vanguard MSCI International Shares (Hedged) ETF (ASX: VGAD)

• AUM: $6.29 billion
• Fee: 0.21%
• 1-year return: 16.07% vs 5.99% for Vanguard MSCI International Shares Index ETF (ASX: VGS)

Regarded as one of the simplest one-stop international equity solutions on the ASX, VGAD tracks the MSCI World ex-Australia Index, providing exposure to more than 1,000 large- and mid-cap companies across developed markets.

The portfolio spans major economies including the United States, Canada, Japan, the United Kingdom and France. It is market-cap weighted and broadly diversified across sectors.

2. Dimensional Global Core Equity Trust (AUD Hedged) (ASX: DFGH)

• AUM: $3.86 billion
• Fee: 0.30%
• 1-year return: 16.26% vs 6.92% for Dimensional Global Core Equity Trust (Unhedged Class) (ASX: DGCE)

The second-most popular currency-hedged strategy is DFGH, an active global equity fund.

It provides developed market exposure using a systematic, factor-based approach rather than traditional market-cap weighting. The portfolio holds more than 6,000 companies and tilts toward smaller stocks, value shares and firms with higher profitability characteristics.

Technology exposure is around 21%, compared with roughly 35% for many conventional cap-weighted global indices.

3. iShares S&P 500 AUD Hedged ETF (ASX: IHVV)

AUM: $3.31 billion
Fee: 0.10%
1-year return: 14.60% vs 2.45% for the iShares S&P 500 ETF (ASX: IVV)

IHVV tracks the S&P 500 Index, providing exposure to 500 of the largest US-listed companies.

The portfolio is market-cap weighted and heavily concentrated in mega-cap stocks, with information technology and communication services accounting for roughly 42% combined.

It is the hedged equivalent of IVV, delivering exposure to US large-cap equities while neutralising USD/AUD currency movements.

4. VanEck MSCI International Quality (AUD Hedged) ETF (ASX: QHAL)

AUM: $2.38 billion
Fee: 0.43%
1-year return: 12.23% vs 2.38% for VanEck MSCI International Quality ETF (ASX: QUAL)

QHAL tracks a quality-screened developed market index selecting companies based on metrics such as return on equity, earnings stability and lower leverage.

The portfolio excludes Australian companies and is constructed using quality metrics rather than traditional cap-weighting alone.

Currency exposure is hedged back to AUD.

5. Betashares Global Shares Currency Hedged ETF (ASX: HGBL)

AUM: $2.08 billion
Fee: 0.11%
1-year return: 16.55% vs 6.53% for Betashares Global Shares ETF (ASX: BGBL)

HGBL provides broad developed market equity exposure and hedges foreign currency exposure back to Australian dollars.

The fund is market-cap weighted and offers exposure to approximately 1,300 companies across more than 20 developed market countries.

It is one of the lowest-cost broad global currency-hedged ETFs available on the ASX.

To hedge or not to hedge?

Currency cycles can quietly dominate offshore returns.

For more than a decade, a falling Australian dollar amplified global equity gains for local investors. That tailwind is no longer guaranteed. If the AUD continues to climb toward its long-term average - or overshoots as it has in past cycles - unhedged global returns could feel the drag.

That doesn’t mean investors should abandon unhedged exposure. Over long periods, currency movements tend to mean-revert. But it does mean the “set-and-forget” approach to FX risk may deserve a second look.