Summary of The Case for Not Currency Hedging Foreign Equity Investments

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The Case for Not Currency Hedging  Foreign Equity Investments summary
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Rating

9 Overall

9 Applicability

9 Innovation

8 Style

Recommendation

The strengthening of the US dollar has re-energized the debate about whether American investors should hedge currency exposures in their international investments so as to eliminate the impact of foreign exchange fluctuations on their portfolios. When it comes to equities, the answer for most investors is no, according to investment analyst Catherine LeGraw. Her authoritative white paper adroitly debunks some of the myths about currency hedging. getAbstract recommends it to US investors who want to understand the dynamics of global portfolios.

In this summary, you will learn

  • Why the rationale for American investors to hedge foreign currency exposures in international equity investments is no longer valid,
  • Why hedging currency risk in foreign equities could add other risks to a portfolio and
  • When currency hedging may make sense.
 

About the Author

CFA charterholder Catherine LeGraw is a member of GMO’s Asset Allocation team. She has worked as an analyst at Bear, Stearns & Co. and as a director at BlackRock. She studied economics at the University of Pennsylvania.

 

Summary

Globalization has muted the impact of currency movements on American investors’ international stock holdings, challenging long-held notions about the importance of hedging foreign exchange risk. Today, big companies with multicurrency cash flows typically derive less than 35% of their revenues from ...

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