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 Aussie dollar falls, unhedged wins; when it rises, hedged wins. Over the last 5 years unhedged came out ahead, but over the last 1 and 3 years hedged has. 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’re doing two things at once. You’re buying overseas shares, and you’re 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. The US market rises 10%. If the Aussie dollar also rises 10%, that currency move can wipe out most of your gain. If the Aussie dollar falls 10%, you get the share market return plus a currency boost.
- Unhedged keeps the currency exposure in. The Aussie dollar’s moves affect your return.
- Hedged uses currency contracts to strip that effect out. Your return is driven mostly by the shares.
Why unhedged looked like the clear winner
Over the five years to around March 2026, unhedged ETFs beat their hedged equivalents in almost every major category. VGS returned 74.7% while its hedged twin VGAD returned 53.8%, a gap of almost 21 percentage points. On the S&P 500, IVV beat IHVV by nearly 40 points. The exception was healthcare, where index differences between HLTH and DRUG mattered more than currency.
The reason was almost entirely the Australian dollar. It was above parity with the US dollar around 2011 and fell to about 63–64 US cents by late 2024. Every step lower made US-dollar assets worth more in Australian dollars, on top of the share market’s return.
Then everything flipped
Over the 12 months to early 2026, the hedged version won in every pair: VGAD beat VGS by 8.6 points and IHVV beat IVV by about 8.4, an average gap of around 8.5 points. Same markets, same companies. The difference was the Aussie dollar recovering from about 63–64 US cents in late 2024 to around 70 cents. On a $500,000 portfolio, 8.5 points is more than $40,000.
The latest numbers (to 30 September 2026)
Here’s how the main pairs look on the newest data. Hedged is still ahead over 1 and 3 years; unhedged still leads over 5.
The Australian dollar: what could change
Buying an unhedged global ETF is also a bet on the Australian dollar. For 15 years that bet mostly paid off. Four things could now pull the other way:
- Commodities are rising again. Australia is a major commodity exporter, and stronger commodity prices usually support the Aussie dollar. That’s what helped take it from about 48 US cents in 2001 to above parity in 2011.
- The interest rate gap is changing. The Fed has cut from its peak while the RBA has turned firmer. Higher Australian rates attract money into the Aussie dollar.
- The Aussie dollar is still historically cheap, around 70 US cents against a long-term average of roughly 75.
- The US dollar may have peaked if the Fed keeps easing.
None of this means the Aussie dollar has to rise. But after 15 years of a falling currency helping unhedged investors, that tailwind can’t be taken for granted.
The hidden cost of hedging
Hedging isn’t free. Hedged ETFs usually charge a slightly higher fee, and there are extra costs in rolling the currency contracts, currently estimated at roughly 0.15–0.3% a year. All up, you might pay an extra 0.2–0.3% a year for the certainty. On $100,000 over 20 years, that drag could cost around $16,000. Hedging costs change with interest rates, so this isn’t fixed.
Which one should you choose?
Unhedged often suits you if…
- you’re investing for 10+ years and still adding money
- you want lower fees and don’t want to think about currency
- you want a natural buffer: when Australia’s economy struggles, the Aussie dollar often falls, which boosts your global shares just when local assets are under pressure
Hedged often suits you if…
- you’re retired or close to it, and drawing income
- your timeframe is shorter, say 1–3 years
- you want your return to reflect the share market, not the exchange rate
- you think the Aussie dollar is more likely to rise
Or use both
You don’t have to choose. For example, instead of 100% VGS, you could hold 70% VGS and 30% VGAD. If the Aussie dollar falls, most of your portfolio still benefits; if it rises, the hedged part cushions the hit. Some all-in-one ETFs already do this: VDAL holds about 18% in hedged international shares, while DHHF is unhedged.
Compare any pair side by side on our ETF comparison page, or find more in the full ASX ETF list.
General information only. This article doesn’t consider your objectives, financial situation or needs. Examples are illustrations, not recommendations. Consider the PDS and TMD before investing. Past performance is not a reliable indicator of future performance.
Frequently asked questions
What is the difference between hedged and unhedged ETFs?
An unhedged ETF gives you overseas shares plus exposure to currency moves. A hedged ETF uses currency contracts to remove most of the currency effect, so your return mainly reflects how the shares perform.
Is hedged or unhedged better?
Neither is always better. Unhedged has won when the Australian dollar fell (most of the past 15 years); hedged has won when it rose (the past 1–3 years). Many long-term investors hold mostly unhedged with some hedged.
How do I know if my ETF is hedged?
Check the fund name for “hedged” or “currency hedged”, or look for an H in the code, such as VGAD, IHVV, HNDQ or HGBL.
Do hedged ETFs cost more?
Usually a little. They tend to have slightly higher management fees plus hedging costs, often an extra 0.2–0.3% a year in total, which varies with interest rates.
Should retirees use hedged ETFs?
Hedging can suit people drawing income or with shorter timeframes, because it reduces the impact of currency swings on what they spend in Australian dollars. It depends on personal circumstances.