Hedged funds

Linton

ISTM all the major developed world markets are highly correlated, so to a first level of approximation one can regard them all as being priced in $s. If the local currency falls against other world currencies the local market will increase in value.


I dont see the point in hedging - it protects against the risk that the £ will appreciate against other world currencies at the cost of reducing the gains if it falls. Is this what you want to do? Do you see it as a sufficiently better than 50:50 gamble to justify the costs?

EdGasketTheSecond

Linton wrote: »

ISTM all the major developed world markets are highly correlated, so to a first level of approximation one can regard them all as being priced in $s. If the local currency falls against other world currencies the local market will increase in value.


I dont see the point in hedging - it protects against the risk that the £ will appreciate against other world currencies at the cost of reducing the gains if it falls. Is this what you want to do? Do you see it as a sufficiently better than 50:50 gamble to justify the costs?

You answered your own question in your last sentence. People want to invest in stocks, NOT 'gamble' on currencies; so thats why they'd currency hedge. What sterling does then doesn't matter does it?

aroominyork

EdGasketTheSecond wrote: »

You answered your own question in your last sentence. People want to invest in stocks, NOT 'gamble' on currencies; so thats why they'd currency hedge. What sterling does then doesn't matter does it?

Yes, that's what I am thinking too, that hedging removes a currency gamble and lets your investment truly reflect the market in which you are investing; yet most people seem to see hedging as adding a gamble. The Yen has, over time, been more volatile than £/$/€ so, added to Sterling's current weakness, that makes the option worth considering. And as I explained in post #11 it can be done at no additional cost.

Linton

EdGasketTheSecond wrote: »

You answered your own question in your last sentence. People want to invest in stocks, NOT 'gamble' on currencies; so thats why they'd currency hedge. What sterling does then doesn't matter does it?

People have no choice but to gamble on currencies - a fall in the £s value against other currencies ultimately leads to higher inflation as commodities are priced on world markets effectively in $s. Investing in currencies across the world is the hedge.

aroominyork

Linton wrote: »

People have no choice but to gamble on currencies - a fall in the £s value against other currencies ultimately leads to higher inflation as commodities are priced on world markets effectively in $s. Investing in currencies across the world is the hedge.

Sure, but noone is saying that a hedged Japanese fund magically creates a bubble in which world currencies no longer exist.

Incidentally, there are a fair few hedged Japanese equity funds out there: Lindsell Train, JPM, First State, Man GLG, even the testosterone fueled Legg Mason.

aroominyork

This article discusses some of the points in this thread: hedging, the volatility of the Yen and the inverse correlation between the strength of the Yen and the Japanese stock market https://www.charles-stanley-direct.co.uk/News_Features_Research/japan-–-hedge-or-not-hedge/

Malthusian

aroominyork wrote: »

This article discusses some of the points in this thread: hedging, the volatility of the Yen and the inverse correlation between the strength of the Yen and the Japanese stock market https://www.charles-stanley-direct.co.uk/News_Features_Research/japan-–-hedge-or-not-hedge/

To me this article emphasises that currency hedging should only be undertaken for very specific reasons. I.e. not on the grounds that you think Sterling is going to rise (which is gambling on forex) or that hedging will magically protect you from the fact that Sterling will always rise and fall and the price of almost everything you buy will be affected by that. (Unless you live on a remote self-sufficient Scottish island where the entire economy runs on Sterling.)

This is why there is more demand for hedged Japanese funds than for hedged global funds.