An unhedged ETF gives you overseas shares plus the currency move. A hedged ETF strips out the currency, so your return mostly reflects the shares. When the Australian dollar falls, unhedged wins; when it rises, hedged wins. Last year hedged won by 5 to 7%; over five years unhedged won by up to 20%. Many long-term investors hold mostly unhedged, with some hedged.
Hedged vs unhedged, explained
When you buy an ASX-listed international ETF such as VGS, IVV or NDQ, you are doing two things at once. You are buying overseas shares, and you are taking on currency exposure, because those shares are priced in US dollars (or another currency) and have to be converted back into Australian dollars.
Example: you put $100,000 into an unhedged US share ETF and the US market rises 10%. If the Australian dollar also rises 10%, that currency move wipes out most of your gain. If the Australian dollar falls 10%, you get the share market return plus a currency boost.
- Unhedged keeps the currency exposure. The Australian dollar's moves affect your return.
- Hedged uses currency contracts to remove that effect. Your return is driven mostly by the shares.
If the Australian dollar rises 10%…
Five pairs, side by side
Each pair below holds the same shares. The only real difference is the currency hedge.
| Pair (unhedged / hedged) | 1 year | 3 years | 5 years | Fees |
|---|---|---|---|---|
| VGS / VGAD (global shares) | +10.1% / +17.1% | +64.1% / +72.0% | +74.6% / +67.4% | 0.18% / 0.21% |
| IVV / IHVV (S&P 500) | +10.1% / +15.4% | +69.5% / +77.0% | +87.8% / +67.6% | 0.04% / 0.10% |
| NDQ / HNDQ (Nasdaq 100) | +16.6% / +22.3% | +89.6% / +96.8% | +104.1% / +84.7% | 0.48% / 0.51% |
| BGBL / HGBL (global shares) | +10.4% / +17.4% | +67.4% / +75.6% | n/a | 0.08% / 0.11% |
| QUAL / QHAL (quality) | +10.1% / +16.5% | +56.6% / +63.6% | +71.5% / +58.6% | 0.40% / 0.43% |
Cumulative total returns to 30 September 2026. Source: TMX Australia monthly funds report.
Hedged won in every pair over the past year
Why the winner flipped
Over five years, unhedged came out well ahead: IVV beat IHVV by about 20 percentage points and NDQ beat HNDQ by about 19. A weaker Australian dollar over that period meant every US dollar of shares was worth more Australian dollars.
Over five years, unhedged came out well ahead
Hedged minus unhedged: who won, and by how much
Over the past 12 months the Australian dollar strengthened, and the hedged version won in every pair, by 5 to 7 percentage points. Same markets, same companies. On a $500,000 global share portfolio, a 6-point gap is about $30,000 in a single year.
The Australian dollar: what could change
Nobody can reliably forecast currencies. What we do know is how the Australian dollar tends to behave: it usually falls when global markets are stressed and rises when commodities and global growth are strong. That is why unhedged exposure acts as a natural shock absorber for Australian investors. When world share markets fall hard, a falling Australian dollar often softens the blow.
The hidden cost of hedging
Fees: unhedged vs hedged
- Higher fees. Hedged versions cost a little more, from 0.03% to 0.06% a year in the pairs above.
- Hedging costs. The cost or benefit of the currency contracts depends on the gap between Australian and overseas interest rates, and it shows up in returns rather than the fee.
- Lumpier distributions. Hedging gains and losses can make distributions less predictable.
- Losing the shock absorber. In a sharp sell-off, a hedged fund doesn't get the cushion a falling Australian dollar can provide.
Which one should you choose?
- Mostly unhedged suits most long-term investors: it's cheaper, and the currency tends to help when markets fall.
- Add some hedged (say 25 to 50% of your global shares) if big currency swings would worry you, or if you think the Australian dollar is more likely to rise.
- Closer to retirement? Some hedging can make your returns steadier in Australian-dollar terms, which matters when you are drawing an income.
Compare the pairs in detail: VGS vs VGAD, IVV vs IHVV and BGBL vs HGBL, or see every currency hedged ETF.
Common questions
Is VGS or VGAD better?
They hold the same global shares. VGAD (hedged) won by 7% over the past year as the Australian dollar rose; VGS (unhedged) won over five years. Many investors hold both.
Does hedging reduce risk?
It removes currency risk, but it can increase the size of falls in a global sell-off, because you lose the cushion a falling Australian dollar usually provides.
Do I need to hedge Australian shares ETFs?
No. ETFs that hold Australian shares, like VAS and A200, are already in Australian dollars.
Joshua Stega is a financial adviser with 20 years' experience and the founder of ETF Adviser. He built ReviewETF to make every Australian ETF easy to find and compare.
General information only. It does not take into account your objectives, financial situation or needs. Consider the PDS and TMD before investing. Past performance is not a reliable indicator of future performance. Data as at 30 September 2026.