Investing offshore gives you access to a larger and more varied investment universe, with opportunities for growth and income that are simply unavailable in Australia. International investments also expose investors to currency risk.
While hedging can attempt to protect against adverse currency impacts, it can lead to lower returns. And although hedging can be an effective strategy for reducing the volatility of defensive assets, it can actually increase the volatility of returns from growth assets like international shares.
Allocating funds to international assets has the potential to deliver real benefits — especially at a time when key industries are only available for investment offshore. Yet investing offshore also introduces an important new variable to the investment equation: currency.
Currency movements can sometimes outweigh raw investment returns, turning a loss into a profit — or vice versa. As a result, the total return from an overseas investment effectively has two parts: