Currency hedging for SMSFs: What trustees need to know

As Australia represents a very small portion of the world’s equity markets, an investment in international shares offers investors the opportunity to access industries and sectors that can be very limited in Australia.

Global shares are also a very important diversifier for any SMSF. That’s because there will be periods when international shares outperform Australian shares, and vice versa.

International shares outperformed Australian shares in 2024, with an annual return for the 12 months to end October of 29.3% compared with 25.4% for Australian equities over the same period, according to the Vanguard Digital Index Chart.

But investing offshore comes with an additional layer of risk in the form of currency risk. SMSF trustees need to understand the impact that currency can have on returns for investments that are not denominated in Australian dollars.

Currency fluctuations can have both negative and positive impacts on portfolio returns. Investors who would like to remove currency risk from the investment equation can do so by hedging their currency exposure using a range of strategies.