Currency or exchange-rate risk is a factor when you invest in foreign securities. Although you purchased the Fund in Canadian dollars, it may invest in securities outside of Canada using a different currency. As a result, changes in the value of the Canadian dollar relative to the foreign currency affect your investment value either positively or negatively.
Currency hedging seeks to smooth the ups and downs generated by exchange-rate movements on the value of a Fund and provides investors with more certainty as to the level of foreign exchange exposure in their investment.
Currency hedging is the act of using forward foreign currency contracts to lock-in future exchange rates; think of it as an insurance policy that aims to remove the uncertainty in exchange rates. There are two types of hedging: active and passive.
Portfolio managers can choose to hedge foreign currencies to reduce volatility from currency fluctuations in their fund.
With passive currency hedging, a fund has a stated policy of maintaining a fixed hedged position at all times. Invesco's currency-neutral solutions employ a passive strategy that involves hedging a substantial portion of all foreign currencies. This smoothes the ups and downs generated by exchange-rate movements on the value of a fund and provides investors with certainty as to the level of foreign exchange exposure in their investment.
Funds - Quick links