Given these long-term trends, the volatility and the lack of predictability in the short-term, why would investors want to deal with currencies at all when there are options to potentially avoid the issue entirely? Currencies can clearly add to volatility, and over a long enough time-frame, come back to the mean anyway.

By not excluding currency issues from a portfolio by using a hedging strategy, you have the potential to add to unnecessary fluctuations, and all for an asset that has, historically, a long-term expected return of zero. If these trends continue into the future, it doesn’t appear to be a great deal for investors, and a large part of the reason why currency hedging can make so much sense, particularly for those looking to cut down on volatility.

Why take on additional risk for what historically has been no additional return when you don’t have to?

For more information on currency hedging, make sure to check out our currency hedging strategy center for additional insights.