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Investment funds' de facto currency risk exposure

Author

Listed:
  • Inês Lindoso
  • Andreas Schrimpf
  • Vladyslav Sushko
  • Toma Tomov

Abstract

The sensitivity of fund returns to exchange rates, once underlying asset returns are accounted for, provides a measure of funds' exposure to currency risk, ie their de facto hedge ratio. Bond funds have high and stable hedge ratios, though with some sensitivity to hedging costs. Equity funds' hedging is volatile and consistent with opportunistic currency speculation. In the run-up to April 2025, equity funds with low hedge ratios attracted most inflows and outperformed those with high hedge ratios, but this relation flipped following "Liberation Day".

Suggested Citation

  • Inês Lindoso & Andreas Schrimpf & Vladyslav Sushko & Toma Tomov, 2026. "Investment funds' de facto currency risk exposure," BIS Bulletins 123, Bank for International Settlements.
    • Handle: RePEc:bis:bisblt:123
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    References listed on IDEAS

    as
    1. Hyun Song Shin & Philip Wooldridge & Dora Xia, 2025. "US dollar's slide in April 2025: the role of FX hedging," BIS Bulletins 105, Bank for International Settlements.
    2. Tsvetelina Nenova & Andreas Schrimpf & Hyun Song Shin, 2025. "Global portfolio investments and FX derivatives," BIS Working Papers 1273, Bank for International Settlements.
    3. Baudino, Paolo Alberto & Grothe, Magdalena & Habib, Maurizio Michael & Manu, Ana-Simona & McQuade, Peter & Ricci, Martino & Siciliano, Emilio & Tomov, Toma & Tondo, Luca & Watfe, Gibran, 2025. "What safe haven after the April US tariff announcement? Implications for euro area financial stability," Financial Stability Review, European Central Bank, vol. 2.
    4. Wenqian Huang & Ingomar Krohn & Vladyslav Sushko, 2025. "Global FX markets when hedging takes centre stage," BIS Quarterly Review, Bank for International Settlements, December.
    Full references (including those not matched with items on IDEAS)

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