The currency effect
Apart from asset allocation, currency strategy was a key factor in determining how funds performed over 2010/11. The Australian dollar rose sharply against most major currencies, as shown in Chart 4
, and this had a serious negative effect on returns for Australian investors.
Based on our most recent asset allocation survey, and applying that to the hedged and unhedged market returns, we estimate that the currency effect detracted about 3% from the typical growth fund performance over the year. Some of the better performing funds were those that took out more currency protection by hedging a greater proportion of their international share exposure.
In our most recent Actual Asset Allocation Survey which includes 55 growth options, we found that the percentage of international shares hedged ranged between 0% and 65%, with about 75% of funds having a hedge ratio between 20% and 50%, and the average being 30%.