What is the appropriate level of currency hedging?

Recent currency market volatility, particularly the fall in the value of the pound, has highlighted the importance of determining the appropriate level of currency hedging for investors in international assets.

In this paper we discuss key considerations for setting the appropriate strategic level of currency hedging and the implications of recent market developments.

• Key factors to consider when setting the hedge level include an investor’s asset class mix, currency exposure, costs and time horizon
• We recommend a top-down approach at a portfolio level and a bottom-up approach at an asset class level, considering asset-class specific factors and overall portfolio exposure.