Investing · Jurisdiction EU

Currency-hedged share class

A currency-hedged share class uses derivatives to reduce the currency risk of that class. It shares the same pool of assets. It does not remove the market risk of those assets.

In more detail

As of the ESMA opinion of 30 January 2017: ESMA treats currency hedging at class level as compatible with a common investment objective, unlike other derivative overlays. There is no legal segregation of assets between classes. Losses on the overlay can therefore spill over. ESMA wants over-hedging no higher than 105 percent of the class NAV, and under-hedging not below 95 percent of the portion to be hedged. Costs and the overlay result should be attributed only to that class.

Background

Read next to currency risk, ETFs, costs and the wrapper: the class changes the currency exposure, not the contents. Finmon recommends neither hedged nor unhedged.

An example

The same fund has a euro class with currency hedging and a class in the fund currency. Both hang on the same pool. The hedge costs money and can be incomplete. The equity market remains.

A common misconception

Currency-hedged means the fund can no longer fall.

ESMA describes currency hedging at class level. The market risk of the shared pool remains, and the hedge is not perfect.

Source: ESMA · UCITS share classes. Last reviewed: 2026-10-29. Editorially reviewed on 2026-10-29. Next review 2027-10-29. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.