ETF v praxi
Currency Risk in ETFs: When to Consider Hedging and When Not To
Key takeaways
- Currency risk in an ETF depends on the currency of the assets inside the fund, not the trading currency.
- A long-term investor in a global ETF does not need to actively hedge currency risk.
- Currency hedging costs an additional 0.1–0.5% per year and makes most sense for bond ETFs.
- A strong Czech koruna reduces returns on an unhedged fund in CZK terms; a weak koruna helps.
- A mix of different currency exposures itself functions as natural diversification.
Currency risk in an ETF is the risk that a movement in the exchange rate between the asset currency and your home currency changes the value of your investment — independently of how the assets themselves performed.
Where currency risk actually originates
Many investors think that if they buy an ETF on the Frankfurt Stock Exchange in euros, they bear currency risk against EUR. That is only half the truth. What matters more is the currency of the assets inside the fund. An ETF tracking the American S&P 500 holds shares in USD — even if you buy it in EUR. Your return is therefore influenced by USD/CZK or USD/EUR movements, not just EUR/CZK.
Types of exposure
- Global equity ETFs — you have exposure to dozens of currencies (USD dominates, but JPY, GBP, and EUR are also present). Natural currency diversification.
- Bond ETFs — here currency movements dominate the return more, because bond yields are low and the currency component can overwhelm them.
- Emerging markets ETFs — exposure to the volatile currencies of developing economies increases overall volatility.
When to hedge currency and when not to
Hedging removes currency risk at the cost of an annual fee typically 0.1–0.5%. For equity ETFs with a long horizon (10+ years), studies show that hedging costs generally outweigh the benefit — currency movements largely cancel out over time.
Hedging makes more sense for:
- Bond ETFs, where yields are low and currency influence is dominant.
- Shorter horizons (less than 3–5 years), where there is no time to wait for moves to average out.
- Specific CZK needs — for example, planning to buy property in 2 years.
CZK and the specifics of a Czech investor
The Czech koruna has been mildly appreciating against EUR and USD over the long term (with exceptions). This means a strong CZK slightly dampens returns on unhedged foreign ETFs when converted to crowns. But even this effect is less significant over twenty years than the return of the assets themselves. If you invest through UCITS ETFs, currency hedging is indicated directly in the fund name as "Hedged" or "(H)."
You can learn more about selecting specific funds on the ETF overview page.
FAQ
Does an ETF's currency risk depend on the exchange where I buy it?
No. What matters is the currency of the assets inside the fund, not the exchange or the trading currency. A global ETF bought in EUR on the Frankfurt Stock Exchange still holds assets primarily in USD.
How do I recognise a hedged ETF?
They usually indicate it in the name: "Hedged," "(EUR Hedged)," "(H)." Always verify in the KIID document which currency the hedge targets and what its annual cost is.
Is currency hedging always beneficial?
No. For equity ETFs with a horizon of 10+ years, studies repeatedly show that hedging costs (0.1–0.5% annually) generally outweigh the benefit. Hedging is most valuable for bonds and shorter horizons.
How does a strong CZK affect my returns?
If your fund holds assets in USD and the koruna appreciates, your returns converted to CZK are lower — even if the fund grew in USD terms. Over the long term, however, this is a secondary effect compared to the actual return of the assets.