📅 Last updated: 8 May 2026
· 🏷 Topic: Currency risk, EUR/USD, hedging
· 🇧🇪 For: Belgian investors
If you, as a Belgian, invest in a world index ETF, you implicitly carry currency risk. An MSCI World is ~70% in USD-listed equities. What do exchange-rate movements do to your return?
How currency risk works
Example: you buy a US share for €1,000. Exchange rate EUR/USD = 1.10 → you get $1,100 worth of shares.
Scenario 1: share rises 10% in USD → $1,210. Exchange rate still 1.10 → €1,100. +10% in EUR.
Scenario 2: share rises 10% in USD → $1,210. Exchange rate has fallen to 1.20 (USD weakened) → €1,008. +0.8% in EUR despite the 10% USD rise.
Scenario 3: share unchanged. Exchange rate from 1.10 to 1.00 (USD strengthened) → €1,100. +10% in EUR without the share moving.
💡 For long-term investors in world index ETFs, exchange-rate volatility often neutralises itself over very long horizons (15-30 years). In the short term, the return can differ by +/-10% from the USD return.
How to determine currency risk in an ETF
An MSCI World UCITS ETF can be listed in EUR (on Xetra) but the underlying shares are in USD/JPY/GBP/etc. The ETF price in EUR automatically reflects exchange-rate movements.
Not the listing currency but the underlying exposure is what determines your risk. VWCE is listed in EUR but is ~62% in USD shares.
Hedged vs unhedged ETFs
Hedged ETFs use futures contracts to neutralise the exchange-rate effect. Example: iShares MSCI World EUR Hedged.
| Unhedged (like VWCE/IWDA) | Hedged (like IWDA-hedged) | |
|---|---|---|
| Exchange-rate impact | Full | Neutralised |
| Cost | TER 0.15-0.25% | TER 0.3-0.5% (hedging cost) |
| Suitability | Long horizon | Short/medium horizon |
For long-term investors (15+ years): unhedged is usually more advantageous — the higher cost of hedging eats more return than exchange-rate volatility adds.
For short horizon (3-7 years): hedged can make sense if exchange-rate volatility is a concern.
Which currencies does a Belgian investor hold?
A typical world portfolio for a Belgian retail investor:
| Currency | % exposure |
|---|---|
| USD | ~60-70% (US shares) |
| EUR | ~13-15% (European shares + bonds) |
| JPY | ~5-7% (Japanese shares) |
| GBP | ~3-4% (UK shares) |
| Other (CAD, AUD, EM currencies) | ~10% |
The largest exposure: USD. A 10% weakening of USD vs EUR means ~7% loss on your world portfolio (independent of share prices).
Practical conclusion
For most Belgian long-term investors:
- Currency risk is acceptable for the horizon over which compound interest works.
- Don’t hedge — the extra cost of hedging rarely outweighs the short-term volatility reduction.
- Diversification via a world ETF naturally provides currency spread — not just USD.
For specific money goals on a shorter horizon (3-7 years): consider hedged ETFs for the portion you really need.
🔗 See Diversification explained for the broader context.
Hedge or not: what it actually costs
Currency hedging does not remove exchange-rate risk; it converts it into a cost. Three things decide whether that is worth it:
- Ongoing cost. A hedged share class usually carries a higher TER, plus the cost of the forward contracts themselves. You pay that every year, including years when the hedge gains you nothing.
- Interest-rate differential. Hedging dollars back to euros costs roughly the interest-rate difference between the two currencies. Where that gap is wide, it is a structural drag on returns.
- Horizon. Over long periods exchange rates have historically mattered far less to the end result than the underlying assets. Over short periods they can dominate.
The Belgian detail that is usually missing
A hedged version of a fund is generally a separate registration — a different ISIN, and therefore potentially different treatment on the FSMA list. That is not trivial: registration determines whether the stock-exchange tax on an accumulating share class is 0.12% or 1.32%.
Switching to a hedged version of “the same” fund can therefore change the rate. Check it per ISIN before switching — and bear in mind the switch itself is a sale, carrying stock-exchange tax and potentially capital-gains tax above the annual €10,000 exemption.
A practical line
For a long-horizon global equity portfolio, most Belgian retail investors choose not to hedge: the costs are certain, the benefit is not. Hedging becomes more relevant the shorter the horizon, or where bonds are involved — there the currency effect is often larger than the yield itself.
Sources
- iShares — Hedged vs unhedged ETF research
- Wikifin — Currency risk when investing
- ECB — EUR exchange-rate data
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