Access all our platforms from a single account.
A simple hedge for a messy world: protecting equity returns from a falling dollar
Key takeaways
Foreign investing has two drivers: the asset return and the currency move when you convert back to your home currency.
A fund can trade in EUR, but still carry USD exposure through the underlying holdings.
Hedged ETFs can reduce currency swings, but they add costs and can lag when the dollar rebounds.
A strong US market year can still feel mediocre once you convert the result into your home currency. Not because the companies disappoint, but because the dollar does. That “FX gap” is easy to miss when markets rise and you feel clever. It becomes obvious when the dollar weakens and your return shrinks in translation. Think of it like ordering a great meal and then discovering the exchange rate changed between the menu and the bill. The simple chart below shows one example: USD versus EURO, falling about 11.5% across 2025 on the Saxo platform view. You can swap DKK for EUR, GBP, CHF, or any other home currency. The mechanism stays the same.
The hidden second bet in every foreign investment
When you buy a foreign share or fund, you make two bets at once.
The first bet is on the investment itself. If US shares rise, that is good news.
The second bet is on the currency you must convert through to get back to your own spending currency. If USD falls versus your home currency, it reduces your result at the end, even if the shares do well in USD.
This is why two investors can hold the same US fund and get different outcomes. A US-based investor experiences the return in USD. A non-USD investor experiences the return plus or minus the currency move back into their home currency.
The simple takeaway: currency does not change the quality of the companies you own. It changes what your return looks like on your statement.
Why “listed in Europe” does not remove USD exposure
Many investors assume they avoid currency risk if the product trades in EUR on a European exchange. That is a common misunderstanding.
The trading currency is just the wrapper. The underlying assets drive the value.
Take a global equity ETF that tracks the MSCI (Morgan Stanley Capital International) World index. The biggest holdings are often large US companies. Those companies report in USD, trade in USD, and their value is priced in USD. So even if your ETF trades in EUR, the portfolio can still carry meaningful USD exposure through the holdings.
In plain English: the label on the bottle is EUR, but the liquid inside is partly USD.
This matters most when currency moves are large and fast, which tends to happen around central-bank shifts, inflation surprises, and geopolitical stress. Those are also the moments when investors least enjoy extra uncertainty.
Hedged ETFs: the simple tool most investors can actually use
There are many ways to hedge currency risk. Professionals may use forwards or other instruments. For most long-term retail investors, the simplest option is often a currency-hedged ETF share class.
A hedged ETF aims to reduce the impact of currency moves between the portfolio currency and the hedge currency. In practice, the fund uses hedging contracts so that the day-to-day value is less sensitive to the USD move.
The chart below shows a clear illustration using two MSCI World exposures on the Saxo platform: an unhedged version and a EUR-hedged version. Over the period shown, the hedged line rises more, because the dollar weakness hurts the unhedged return for a EUR-based view.
The crucial point is balance. Hedging is not “better”. Hedging is “different”.
If the dollar keeps weakening, hedging can protect your home-currency return. If the dollar rebounds, hedging can remove that boost and the unhedged version can look better. Hedging smooths the ride, but it also removes some of the upside from favourable currency moves.
Risks to keep in mind
Hedging comes with trade-offs that are easy to ignore in calm markets.
First, hedging is not free. The cost does not always show up as a simple fee line. It often appears as a performance difference over time, influenced by interest-rate gaps between currencies and how the hedge is rolled.
Second, the hedge is not perfect. Funds aim to reduce currency impact, but small differences can appear due to timing and implementation.
Third, a sharp dollar rebound can make hedged products lag, even if the underlying shares do well. If you hedge, you accept that you may miss the currency tailwind in good USD years.
Investor playbook: keep it simple and rule-based
- If your future spending is mainly in EUR, GBP, or DKK, decide what share of your equities you want exposed to USD swings.
- If currency moves start to dominate monthly returns, consider hedging part of the exposure rather than all of it at once.
- If you already have natural USD exposure (income, property plans, or spending in USD), keeping some unhedged exposure can be a reasonable match.
- Set a rebalancing rule (for example, review quarterly or when the hedge ratio drifts), and avoid changing course on one scary headline.
Do you want the passenger to drive?
Currency risk is not a crisis. It is a choice you make, often without noticing.
A weaker dollar can quietly dilute strong US equity returns once you convert back to your home currency. The trade-off is simple: hedging can protect you from a falling dollar, but it can also leave you behind when the dollar rises. The goal is not to predict foreign exchange. The goal is to pick a currency rule that fits your life, then stick to it when markets try to distract you with noise.
This material is marketing content and should not be regarded as investment advice. Trading financial instruments carries risks and historic performance is not a guarantee of future results.
The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options.