In this episode of “What’s the Risk?” we take a look at hedging via the historic performance of the MSCI World ex Australia Index (net div., Hedged to AUD). We combine the index in a 50/50 split with the unhedged version of the index. Some people would know the ETFs that seek to track the performance of these indices as VGAD and VGS. It’s valuable to see the effect currency can have on investment returns, along with how an investor might lower their volatility by using both the hedged and unhedged versions of the indices, which as been the better performing index behind, VGAD vs VGS? You might be surprised.
Some investors may not understand hedging so we provide an easy to understand definition, along with an example from a hedged and unhedged position. Peter also recounts the story of a Tasmanian mining company who was a little too overconfident with their currency position and put themselves out of business.
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