Gavekal Capital: To Hedge or Not To Hedge

Thursday, January 15, 2015

To Hedge or Not To Hedge

Today the Swiss National Bank removed the CHF/Euro peg and the Swiss Franc shot up relative to the USD. In the chart below we can see the almost 15% drop in the value of the USD relative to the Swiss Franc.

For a US-based investor with a hedged exposure to Swiss stocks, today was a bad day. For an unhedged investors, today was a great day. In the first table, we show the performance of the MSCI developed world countries in local currency terms. In the second table, we show the performance in USD terms.

In local currency terms (CHF), the Swiss stock market was a nightmare, but again, in USD terms, it was a dream come true. In the first table, we show the performance today of MSCI Switzerland companies grouped by economic sector, in CHF. In the second table, we show the MSCI Switzerland companies in USD.

To hedge or not to hedge, this is the question. With the USD having been a decidedly one way trade for the last six months, hedging has subtracted from returns...until today.

About Gavekal Capital

Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
We offer the Gavekal Knowledge Leaders Strategy in multiple products for global investors. For more information about our product offerings please visit http://www.gavekalcapital.com.
Blogs are posted by our investment team. Find out more about us at here. Read more about our strategy at www.gavekalcapital.com.

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