Off topic, as you already state, but I agree: hedging isn’t worth it for long term investors.
(thus, IIUC, I am only slighty confused about why you still hedge? It seems like a short term bet as you prefer to avoid shrinkage in your dry powder keg at the expense of paying the insurance premium if the short term FX bet goes against you?)
Moderators, if you are still reading, please fork this off to the Hieronymus Bosch themed light hearted discussion section for slightly differing asset allocation opininion (esp. regarding hedging) sections, see below pic for easy guidance on slotting into the appropriate section:
Maybe more generally on why hedging is IMO a money losing stratey:
Hedging is paying for insurance. Insurance by intent and on average benefits the seller of insurance, not the buyer.
If you buy a hedged instrument, you’re the buyer of insurance.
And then finally speculating on why hedging, despite all this discouraging evidence, is still so popular … (IMHO):
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Insurance sellers (financial institutions) on average benefit from selling insurance, so why not promote it?
Aka:
Customer (C): “I would like to invest in a low-risk-high-return thing.”
Bank (B): “Well, we have this incredible investment product X.* We expect super high returns. There’s risk Y, but we can hedge against the downside of unlikely event Y occurring, really a very low probability event.”
C: “Uh huh?”
B: “So, to be on the safe side, we can hedge against this Y event. Here’s the hedged product X^2 that does just that. If Y occurs, your bet on X is completely safe. In fact, it goes up!”
C: “Ok, I’ll put all my money in X^2. Make it happen now.”
B: “There are still risks associated with product X^2, please see the fine print on this cute leaflet.”
C:
B: “Please sign here.”
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Most professional asset managers benchmark their funds to indices. Hedged funds benchmark to hedged indices.
They prefer giving up potential outperformance to avoiding losses (relative to the benchmark) which seems completely in line with the “loss aversion” preference of most retail investors (augmentend, in the case of professional investors, by bonuses tied to the performance relative to their corresponding benchmark).
It’s probabyl a little more complicated than that, but not much, IMNSHO.
Summary:
If you’re really not comfortable without a currency hedge, perhaps just stick to assets denominated in your preferred currency? No insurance premium money shelled out to the usual suspects.
Otherwise, accept that you’ll shell outmoney for those insurance contracts called “hedges”. I’m personally mostly on the other side of your hedge contract, so your choice is fine with me.
* Any resemblance between “X”, the placeholder in this post, and X, the social media platform taking over the world akin to Tesla, Space X, the Boring Company, Neuralink, etc, is purely coincidental.