Returns on overseas stocks and bonds can be affected more by currency movements than equity prices, according to a new report from Deutsche Asset & Wealth Management.
The report was based on a study of the euro, which has seen big fluctuations in value compared to the US dollar, Swiss franc and Japanese yen. The study found that in seven out of the previous 13 calendar years investors could achieve greater gains or losses from currency moves than equity or price moves. Similar results were seen for global bond portfolios. As a result, using a currency hedge could reduce the volatility of a portfolio. Deutsche added that the cost of currency hedging has been reduced by zero interest rate policies in many developed markets. Alternatively, exchange-traded funds can provide efficient market access with currency hedging.