Currency Hedging in Investment Objectives
This article was originally published in the Investment Funds Practitioner in November 2014.
Staff are aware that many investment funds employ currency hedging as a strategy to reduce foreign currency risk for investors. Sometimes the ability to employ currency hedging is discretionary and the investment fund’s prospectus discloses that the portfolio manager may hedge the foreign currency exposure and that the hedge may be anywhere from 0% to 100% of the fund’s foreign currency exposure. However, for other funds, the prospectus discloses that all or substantially all of the fund’s foreign currency exposure will be hedged, and that the hedging is not at the portfolio manager’s discretion.
In the second scenario discussed above, staff’s view is that the currency hedging described is an essential feature of the investment fund, and, therefore, should be disclosed in the fund’s investment objectives (as required by Instruction (3) to Item 6 of Form 81-101F1 and Instruction (3) to Item 5.1 of Form 41-101F2). Accordingly, in our prospectus reviews, we have been indicating this expectation to filers.