Time to switch to unhedged ETFs for UK/EU investors (EQQQ vs EQGB)?

Generally, there is not much difference between hedged and unhedged ETFs for UK investors over the long term, however due to the weakening dollar to GBP rate, instead of buying the Nasdaq 100 ETF EQQQ, I have been buying the hedged ETF version EQGB (which has a higher TER of 0.35% compared to 0.30%) because the performance difference has been quite marked.

In the above chart, we see the hedged EQGB has massively outperformed the unhedged EQQQ so far this year. Almost a 9% difference in the last 6 months is quite a difference!

However, if we look at the performance over just the last month, I can see that the unhedged ETF EQQQ has shown a return of 4.86% vs. 4.04% of EQGB.

If we look at a long term chart however, we can see that EQQQ has performed better if held over many years...

If we look at the dollar to GBP rate, we can see an uptick in the exchange rate has started this week...

So by buying EQGB instead of EQQQ for the last 6 months, I have gained about 9% more, but now I am thinking of selling my EQGB ETFs and buying EQQQ instead. 

Since I would be subject to capital gains tax within my GIA account, I will only do this within my ISA accounts.

All World Hedged ETFs

All world ETFs contain about 60% USA stocks and many are within the S&P 500 anyway.

I did not buy a hedged All World ETF instead of my core SWDA global ETF, but it is interesting to note that maybe I should have...

This shows the GBP hedged ETF performed +5% higher than the unhedged MSCI World ETF and 

European (EURO) investors would have seen an even better return.

The TER is quite high because of the large number of stocks in the ETF (TER 0.55%, 1300+ stocks).

Also, I hold most of my core SWDA and HMWS MSCI global ETFs in a GIA and so I don't want to chop and change between a hedged and unhedged version of the Global ETF because I would then be subject to a lot of capital gains tax.

In any case, over the long term, an unhedged ETF will usually win because of the higher TER of the hedged version.

So for long-term core holdings, I believe an unhedged core ETF is best.

To hedge or not to hedge - that is the question

Generally, I had always thought that, when investing for the long term, it is better not to buy a hedged fund because Fx rates tend to go up and down with time and it will all even out over the years anyway (but the TER is higher for a hedged fund). However, using hedged ETFs for shorter terms certainly seems like a useful string to add to my bow!

Within an ISA or SIPP (no tax on gains)

• IF Dollar to GBP going down (e.g. 0.8 -> 0.7 in H1 2025)  - buy hedged ETFs
• IF Dollar to GBP going up (e.g. 0.74 -> 0.9  Jan-Oct 2022) - buy unhedged ETFs

I don't buy the S&P 500 as I prefer to buy a global core ETF plus factor ETFs like Tech and Finance, but if you buy S&P 500 ETFs, buying a hedged S&P 500 ETF would have been a smart move (within a tax free wrapper).

Next week could show a large movement in the USD/GBP rate (due to USA and UK economy figures being released) so I will watch the Fx rate with interest and sell EQGB and buy EQQQ if it looks like it is recovering.

What do you think?

P.S. I am considering buying both MasterCard and Visa at the moment or the World Finance ETF WFEG. MA and V are both lucrative businesses and both are expected to beat their Q3 estimates. They look good value at the moment, the price is probably depressed due to the perceived threat of stablecoins, however, I believe people and retail businesses will prefer the payment protection, fraud prevention and the other advantages that they get from credit cards. Stablecoins may hurt banks and direct debit commissions far more than credit card transactions. There is no advantage to the consumer to use a stablecoin debit card instead of a bank direct debit card and even less benefit compared to a credit card. Coinbase and Stripe may benefit from stablecoin, but as the US economy worsens due to the US import tariffs causing massive CPI increases (which will cause the downfall of Trump when the USA finally realises that tariffs are just a way of taxing them), more people than ever will appreciate the ability to buy goods on credit in H2 of 2025!