Hedged or unhedged MSCI World ETF: a policy for euro investors

Over nearly 25 years to 30 October 2026, hedging MSCI World back to the euro lowered compounded growth and did not soften the worst fall: the hedged index grew 7.25% a year, the unhedged index 7.59%, and their worst month-end falls were 51.4% and 49.0%.

A euro investor in a world equity ETF holds about 92% of it in other currencies, 73.4% in dollars. The euro reached its 2026 low against the dollar on 29 October, at 1.1130 on the ECB reference rate, so the hedged share class is a live question.

Currency hedging is sold as a way to remove a source of volatility. For a portfolio meant to compound for decades, the test is different: does it raise growth after costs, and does it reduce the losses that matter? Use the evidence to choose a policy tied to when and in which currency you need the money, then review its costs and fit without forecasting the next currency move.

Key takeaways

1. Hedging lowered growth before fees, and more after them. The index gap was 0.33 points a year from end-2001; from 30 September 2010 to 9 November 2026, iShares' hedged ETF grew 10.13% a year in euros and iShares Core MSCI World 12.52%.
2. In crashes, hedging helped about as often as it hurt, and it hurt in the deepest fall. The hedged index lost less in four of nine falls since 2002 and more in five, including 55.4% against 52.5% in 2007-09 and 23.7% against 13.9% in 2022.
3. Foreign currencies acted as a partial diversifier, and hedging removed it. Their monthly effect had a correlation of minus 0.30 with world share prices; hedged, monthly volatility rose from 13.6% to 14.0%, although daily volatility fell slightly.
4. The euro gained 27% on the dollar, and hedging still lost. The hedge cost 0.90% a year against the local-currency index and was negative in 22 of 25 years, more than the 0.59% a year that currency moves cost the unhedged holder.
5. A household can check its share class, its currency exposure, the fee gap and today's rate gap; it cannot know the euro's next move. That unknown move decides whether hedging pays.

Did hedging raise or lower the growth of MSCI World for a euro investor?

It lowered it: from 31 December 2001 to 30 October 2026, MSCI World grew 7.59% a year in euros unhedged and 7.25% hedged to the euro, so €100 became €607.29 against €562.51, before fund costs. Both are net total return indexes published by MSCI; the hedged one sells each foreign currency forward for one month at a time.

31 Dec 2001 to 30 Oct 2026, a year: hedged to EUR 7.25%, unhedged in EUR 7.59%, local currencies 8.22%; euro cash (3-month Euribor) 1.45%. Source: MSCI World 100% Hedged to EUR, index 124086, MSCI World, index 990100; annual returns (CSV), monthly levels (CSV).

MSCI's factsheet for the hedged index, dated 30 October 2026, gives the same ordering over its full history from 31 January 2001. It reports 6.22% a year hedged, 6.59% unhedged in euros and 7.11% in local currencies. The calendar years split more evenly: hedging was ahead in 11 of 25, including 2025, when it returned 16.73% against 6.77% as the euro rose 13.1% against the dollar.

The gap of 0.33 points a year compounds. Over these 296 months it adds up to €44.78 on every €100 invested at the start, before any fee difference between the share classes. In 2026 to 30 October the euro fell 4.9% against the dollar, and the unhedged index returned 16.67% against 10.19% hedged.

Did hedging make the ride smoother?

Not consistently: on monthly returns the hedged index was more volatile, 14.0% against 13.6% a year, and its worst fall from a record close was 55.4% against 53.4%. Only on daily returns did hedging lower volatility, from 15.9% to 15.5%.

Hedged / unhedged: monthly volatility 14.03% / 13.59%, worst 12 months −43.24% / −39.40%, worst month-end fall −51.43% / −49.01%, Sharpe 0.47 / 0.50, Sortino 0.66 / 0.71. Source: MSCI indexes 124086 and 990100, ECB 3-month Euribor; summary (CSV).

The two frequencies disagree because currencies add day-to-day noise that partly reverses within a month. Over a month, the larger effect is that foreign currencies tended to rise against the euro when world shares fell. The monthly currency effect had a correlation of minus 0.30 with the local-currency index, so an unhedged holder's currency gains partly offset share losses.

MSCI's own factsheet reports the same pattern over ten years to 30 October 2026: an annualised standard deviation of 13.92% hedged against 13.44% unhedged, on monthly data. Its Sharpe ratio since January 2001 is 0.40 hedged and 0.43 unhedged. Our Sharpe and Sortino ratios use 3-month Euribor as the cash rate and as the Sortino target.

Volatility reduction that does not reduce the largest losses is weak protection for compounding. A 55.4% fall needs a 124% gain to recover, against 115% after a 53.4% fall, on the formula in our recovery maths guide. The Sharpe ratio versus CAGR guide explains why a ratio is not the growth of a balance.

What did hedging do in stock market crashes?

It lost less in four of nine falls and more in five; the dollar rose against the euro in the 2007-09, 2018, 2022 and both 2026 falls, and fell in 2002, 2015-16 and 2025. Each fall runs from MSCI World's record close in local currencies to its lowest close, so the currency effect is measured over the share market's own crash.

Hedged / unhedged, in euros: 2002 −28.25% / −34.52%, 2007-09 −55.40% / −52.47%, 2020 −33.32% / −33.76%, 2022 −23.72% / −13.87%, 2025 −17.07% / −19.96%, August to 6 November 2026 −5.44% / −2.23%. Source: MSCI daily index levels, 124086 and 990100, ECB EUR/USD reference rates; crash episodes (CSV).

In 2022 the euro fell from $1.1279 to $0.9706 between the share market's record close and its low, a 13.9% drop. That currency gain cut the unhedged loss to 13.9%, against 23.7% hedged. From October 2007 to March 2009 the euro fell 11.3%, and the hedged index lost 2.9 points more.

The counterexamples are real. From March to September 2002, measured at month ends because MSCI has no daily hedged history before May 2002, the euro rose 13.0% against the dollar and hedging saved 6.3 points. In the February to April 2025 fall, the euro rose 4.8% and hedging saved 2.9 points; in 2020 the difference was 0.4 points.

Both 2026 falls went the unhedged holder's way. From the 13 August record to 6 November, during the November AI sell-off, the hedged index lost 5.4% and the unhedged one 2.2%. In the February to March fall that coincided with the 2026 oil shock, the figures were 8.5% and 6.2%.

Where does the cost of hedging come from?

From the interest-rate gap passed on by forward contracts, from a hedge that stays fixed for a month, and from fees: together, the hedge took 0.90% a year off the local-currency return from end-2001, and lost money in 22 of 25 calendar years. That is a copio calculation from MSCI's hedged and local-currency indexes.

A forward sale of dollars for euros is priced from the two currencies' interest rates. When dollar rates are above euro rates, the hedger gives up roughly the difference. In September 2026, three-month Euribor averaged 2.64% and the OECD's US three-month interbank rate was 3.94%, a gap of 1.30 points on the dollar part of the portfolio. From January to October 2026, the hedge took 1.21% off the local-currency return.

The second cost comes from the hedge's design. The iShares prospectus says of the benchmark: "No adjustment is made to the hedge during the month to account for price movements of constituent securities of the Benchmark Index".

In October 2008, world shares fell 16.4% in local currencies, leaving the hedge larger than the holding, while foreign currencies gained 7.3% against the euro. The hedge lost 1.73% that month, against about plus 0.18% from the dollar rate gap.

The third cost is the fund itself. The PRIIPs KIDs show ongoing costs of 0.55% a year for iShares MSCI World EUR Hedged (IE00B441G979) against 0.20% for iShares Core MSCI World (IE00B4L5Y983), and 0.14% against 0.12% for Amundi's hedged and unhedged Core MSCI World classes. Over ten years to 31 October 2026, the iShares hedged ETF returned 11.03% a year against 11.36% for its benchmark.

Measured on the two iShares ETFs, the gap was larger than on the indexes. From the hedged ETF's launch on 30 September 2010 to 9 November 2026, €100 grew to €472.90 in the hedged ETF and to €668.82 in Core MSCI World, converted at ECB rates. Over the same dates the indexes grew 10.50% and 12.51% a year, so the index gap explains most of the difference and fees and tracking the rest.

When did hedging win?

When the euro rose against other currencies by more than the hedge cost: of 177 ten-year windows starting each month from December 2001, the hedged index was ahead in 18, all starting between December 2001 and October 2003. In those years the euro was still close to its October 2000 low of $0.8252: it stood at $0.8813 on 28 December 2001, against $1.1172 on 30 October 2026.

The best ten years for hedging, February 2002 to February 2012, gave it a lead of 1.99 points a year. The best for the unhedged index, November 2009 to January 2020, gave a lead of 3.57 points a year. Within single years, the euro's 19.0% rise against the dollar in 2002, 20.4% in 2003, 13.8% in 2017 and 13.1% in 2025 all made hedging the better choice.

The rate gap has also favoured hedgers before. Three-month Euribor was above the US rate on average in 2002 to 2004 and 2008 to 2014, and the hedge result was positive in 2002 to 2004. From 2005 it was negative every year, including 2008 to 2014. The dollar gap alone does not explain that, because the index hedges more than a dozen foreign currencies with a hedge fixed for each month.

So the 25-year result rests on one specific path of the euro. A study starting in late 2001 begins near the euro's low, which makes it a demanding test for unhedged holdings, and they still came out ahead. The widest gap, in the ten years from November 2009, started with the euro at $1.5023.

What does this mean for long-run geometric growth?

Hedging replaces an uncertain currency return with a mostly predictable carry, which is currently negative for the dollar; on this record that trade lowered growth and did not reduce the largest losses. For a long-run holder, it is a currency position, not a free reduction in risk.

The arithmetic is simple. Hedged growth is roughly the local-currency return plus the hedge result, and unhedged growth is the local return plus the currency move. Since end-2001 these were 8.22% local, minus 0.90% for hedging and minus 0.59% for currency moves. Before any difference in volatility, hedging improves expected growth only if the expected currency move is worse than the hedge result, after its higher fees.

Nobody can measure that expected currency move in advance with any reliability, and this article does not forecast it. What can be known on the day of a decision is the rate gap, the share-class fee and the fact that the hedge is reset monthly. With dollar rates 1.30 points above euro rates in September 2026, the hedge starts each year behind on most of the portfolio.

For crash protection, the evidence points the other way from the usual argument for hedging. In the deepest fall since 2002, from 2007 to 2009, and again in 2022, the dollar's rise cushioned unhedged holders, and hedging deepened the loss. Those dollar gains are not reliable crash insurance; a joint fall in shares and the dollar remains possible. Hedging currencies also leaves the underlying equity risk in place. Other protection, such as cash for near-term spending or assets that rose in past crashes, is covered in our crash havens study.

The limits matter. One 25-year sample contains a handful of currency cycles, MSCI's history before April 2005 is back-tested, and future rate gaps can reverse. Money due in euros within a few years is a different case: a 13% currency swing in one year matters more when the money must be spent, which this study does not test.

What can you check in your own portfolio?

These checks use your broker statement, the fund's KID and public rates; none depends on a currency forecast.

1. Find out whether your world ETF is hedged. Look for "EUR Hedged" or "hEUR" and verify the policy in its documents; a euro trading price alone does not hedge the foreign holdings.
2. Measure your currency exposure. On 30 October 2026, MSCI World was 73.4% dollars, 5.8% yen and 8.2% euros, so about 92% of a world ETF sits outside the euro before any hedge.
3. Compare the two classes' KID costs. The gap was 0.35 points at iShares and 0.02 points at Amundi; also check the factsheet's return against its benchmark.
4. Include the rate gap in the cost comparison. Three-month euro and US rates indicate dollar hedge carry; this is one input, not a signal to switch share classes whenever rates move.
5. Date the money. Separate capital you will not touch for ten years or more from money due within a few years, in euros, where currency swings weigh more.
6. Check whether you are reacting to a move already made. The euro's 2026 fall from $1.1974 in January to $1.1130 in October is already in your unhedged return; hedging now protects only against the next move.

If you hold both kinds of share class, add up the hedged part to see your effective hedge ratio. In copio's private beta, you can see how your holdings fell together in past crashes and what your fees compound to.

How can you maintain the policy?

Write down the purpose and horizon of the equity holding, the hedge ratio you are evaluating, and why its expected benefits justify its costs. An annual portfolio review is one possible routine; also reconsider when spending currency, planned withdrawals, fund terms or fees materially change. That is a maintenance example, not an optimised trading schedule.

The fund manages its own currency forwards, so holding a hedged share class does not require you to roll contracts yourself. Switching classes can incur spreads, transaction charges and tax on realised gains, depending on the account. Include those before acting, and assess bond and near-term cash holdings separately: this equity comparison does not establish their appropriate hedge policy.

For the US concentration behind the dollar exposure, see building a portfolio beyond the US and whether an S&P 500 ETF diversifies MSCI World. Hedging cash instead of equities is a different calculation, covered in hedged US Treasury bills for euro investors.