The objective of currency hedging is to remove the effects of foreign exchange movements, giving Canadian investors a return that approximates the return of the local market. Without hedging, a falling dollar adds to your returns but the opposite is also true. An appreciating Canadian dollar can hinder and detract from returns.
Currency hedging is useful when the value of the Canadian dollar is lower than the foreign currency (for example the US dollar) and expected to increase.
Mutual funds that invest in foreign markets – U.S. funds, Global and International funds are impacted by currency fluctuation. Some of these funds are able (by prospectus) to hedge against these fluctuations internally while in other cases there are specific currency neutral versions of the funds available.
Please read a fund’s prospectus or fund fact sheet and speak to your advisor before investing.