In the short term, the answer is: "noticeably for the better," "noticeably for the worse," or "pretty much not at all."
In the long term, the answer is "pretty much not at all."
I bring up this subject because I own several foreign stocks and I don't hedge. Admittedly, it's probably not practical for a portfolio my size, but I don't lose any sleep over it. And over the long haul I haven't noticed making or losing much money due to currency fluctuations.
Some value-oriented managers running international portfolios that CG respects and admires do hedge. Their hedging policies helped them in the mid-to-late 1990s and the first few years of the new century. But they are finding that not hedging would have been more favorable at times since then. This is no big deal, because the purpose of hedging is to make sure that currency movements have a neutral impact on the overall performance of a portfolio.
This site takes the view that currency fluctuations also have the same impact on unhedged portfolios -- in the long run.
The folks at Templeton agree. And Templeton has been investing globally much, much longer than anyone. In fact, Templeton has studied this extensively and finds that over the long term -- ten years or more -- currency movements tend to average out. Does ten years sound like a long time? It isn't. Especially when you consider that investing isn't something you do for a year or two . . . but over the course of your lifetime.
Stated simply:
- If your portfolio is unhedged there will be times it seems a smart thing to do and other times it seems a dumb thing to do.
- If your portfolio is hedged there will be times it seems a smart thing to do and other times it seems a dumb thing to do.
And no one can predict when currency movements will hurt you or help you. At the beginning of 2005, the business news media was full of stories about how to take advantage of the falling dollar. Guess what? The dollar hasn't had such a bad year. (Clearly, the dollar did lose value before this year, and some of my holdings benefited.) So much for conventional wisdom.
By far, the MOST IMPORTANT factor impacting any stock over the (here's that term again) long term is the performance of the company's business. Not any currency.
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