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Insights publications are quick-read papers written by the best and brightest minds throughout our global organization. |
Managing Risk/Reward in Fixed Income: Using Global Currency-Hedged Indices as Benchmarks. In this paper, the author concludes that global currency-hedged indices provide attractive risk-adjusted returns in contrast to global currency-unhedged indices which produce more volatile returns due to their open currency positions. Additionally, global currency-hedged indices provide interest rate diversification while removing currency volatility. These conclusions, also applicable for individual portfolios, were identical for both global government bond indices and global broad market indices. In brief, the author recommends that investors seeking global diversification should consider a global currency-hedged index as their benchmark.