An overseas investment can rise in its quoted currency while falling in the currency an investor plans to spend. Evaluating the result requires both the asset price and the exchange rate.
A simple hypothetical example
Suppose an investment worth USD 100 is bought when one dollar equals JPY 100: its yen value is JPY 10,000. Later it is worth USD 110, but one dollar equals JPY 90. Its yen value is then JPY 9,900. That is a 10% dollar gain and a 1% yen loss, before fees and taxes. These invented numbers explain the mechanism; they are not market data or a forecast.
Follow the whole currency route
Identify the currency used to contribute, value the holding, receive payments and ultimately spend the proceeds. A fund’s reporting currency does not necessarily describe all of its underlying currency exposure. Conversion charges and the timing of each exchange also affect the amount received.
Understand what a hedge covers
A currency hedge may reduce a defined exposure, but its cost, coverage and limits need to be understood. It does not remove the investment’s other risks. Ask what is hedged and against which currency rather than relying on the word “hedged” alone.