Final report on The Great Currency Hedge Experiment (2025-10-13)

Eight weeks ago on Monday 18th August I bought £50 worth of shares in various hedged and unhedged ETFs.

The idea was to study what the real-world effect of holding currency-hedged ETFs is, when compared to holding unhedged equivalents. I also bought my favourite FTSE 100 RAFI ETF PSRU to compare this UK ETF with US ETFs just for fun.

Here are the 10 ETFs listed in order of descending unrealised gain after 8 weeks (ETF currency shown)

1. NASL 5.66%  £ Amundi  Core Swap NASDAQ 100
2. EQQQ 5.60%  £ Invesco NASDAQ 100 (Dist)
3. CSP1 4.82%  £ iShares Core S&P 500
4. CSPX 4.80%  $ iShares Core S&P 500 (Fx Impact 1.56%)
5. SWDA 4.32%  £ iShares Core MSCI World
6. EQGB 4.04%  £ Invesco NASDAQ 100 Hedged
7. IWDE 3.33%  € iShares MSCI World Euro Hedged (Fx Impact 0.66%)
8. IGUS 2.86%  £ iShares Core S&P 500 Hedged
9. IGWD 2.76%  £ iShares MSCI World Hedged
10. PSRU 2.32%  £ Invesco FTSE 100 RAFI

Results

We can see the effect of exchange rates:

The $USD rate has strengthened over the last 8 weeks.

All World

• SWDA 4.32%  £ iShares Core MSCI World
• IWDE 3.33%  € iShares MSCI World Euro Hedged (Fx Impact 0.66%)
• IGWD 2.76%  £ iShares MSCI World Hedged

Here we see that the hedged fund IGWD did not perform as well as IWDE hedged Euro. SWDA Core has 1320 holdings, whereas IWDE and IGWD have 1635 holdings and so only these two can be directly compared.

It is clear that unhedged World ETFs win over the previous 8 week period. The Euro hedged ETF beat the £GBP hedged one.

NASDAQ 100

1. NASL 5.66%   £ Amundi  Core Swap NASDAQ 100
2. EQQQ 5.60%   £ Invesco NASDAQ 100 (Dist)
3. EQGB 4.04%   £ Invesco NASDAQ 100 Hedged

Same result here, unhedged was better.

S&P 500

1. CSP1 4.82%   £ iShares Core S&P 500
2. CSPX 4.80%   $ iShares Core S&P 500 (Fx Impact 1.56%)
3. IGUS 2.86%   £ iShares Core S&P 500 Hedged

Again, unhedged was better. Buying $ ETF or same ETF in £ was about the same.

Conclusion

USA companies dominate the list of the top 10 biggest companies in the world. This means that even the World Index ETFs are tied to the $USD.

In the last 5 years, we can see that the $USD/£GBP Fx rate has varied by 25%. 

Most finance books are written for the American investor. UK YouTubers seem to give more importance to the TER charge of an ETF and seldom mention that you have a choice between hedged and unhedged ETFs.

If you have a long term, GIA account, then holding an unhedged (USA heavy) ETF for 30 years will probably do better than a hedged version.

The five-year $USD/£GBP Fx chart below shows that the Fx rate has clear trends and these can be predicted.

Holding USA-heavy ETFs inside a tax-free wrapper like an ISA or SIPP or pension fund however, is a different matter as we can sell without incurring taxable gains...

1. If you want a low maintenance, hands-off approach - just by unhedged ETFs.

2. If you are approaching a drawdown period (e.g. retirement) or plan to cash in your portfolio within a few years (e.g. pay off a mortgage or buy a new car), switch to a hedged fund if the $USD looks to be weakening (as in Jan 2025).

3. If you to increase your portfolio performance by at least 2%+, then check the Fx GBP\USD price forecast for the next quarter. If the $USD is forecast to strengthen (like now) then switch your World and US ETFs to unhedged ETFs - if the forecast is bearish (weakening $USD) then switch to hedged World and US ETFs. Switching means selling and this may cause a taxable event unless you switch within a tax free shares account.

Current forecast for Winter 2025 is Bullish - so buy unhedged ETFs!

Previously, I had switched from EQQQ to EQGB inside my ISA accounts and SIPP around the end of 2024.

EQQQ gain vs EQGB gain for last 10 months (YTD): a 6.7% difference. i.e. If I invested £10K, that means switching from EQQQ to EQGB in Jan 2025 would have earned me an extra £670.

Most experts are currently predicting a strengthening $USD - so I have now switched my hedged Index ETFs to unhedged inside my ISA.

I hold SWDA (actually HMWS which has a lower TER) inside my GIA account, so I did not switch it to the hedged IGWD (dist.) or WGDA (new Core MSCI World hedged accumulating ETF). 

It is also interesting to note that PSRU FTSE 100 RAFI beat the NASDAQ, S&P and All World over this last 12 months, however it is now underperforming.

Overall, my strange Hedge Experiment £500 Pie earned  me £18 over two months for a £500 outlay. Simply buying EQQQ with that £500 would have earned me £28. So the experiment cost me £10 but it has also shown me that the Justetf.com charts can be trusted and for non-US investors, hedged ETFs are definitely worth considering when the Fx forecast is for a weakening $USD!

Buying a £ ETF rather than the same $ ETF (CSP1 vs CSPX) seems slightly better, even with Trading212 low 0.15% Fx rate charge.

Buying the hedged EQGB at the end of 2022 would have been an even better move.

Now however, unhedged ETFs seem more promising for UK investors.

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