Anonymous
What is the difference between USD-denominated and SGD-Hedged funds?
I am often told there is no forex costs in SGD-H. Is this true? Or how does SGD-H funds work / benefit to investors like us who want to invest in SGD?
Even as an institution, you still have to convert SGD to USD and vv and there is still a bank charge or spread, no?
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Dora Seow
09 Dec 2020
Country Head, Singapore at Franklin Templeton
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SGD-hedged removes the fx risks
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SGD-denominated funds means that you have less worries on FX rate fluctuations and weakened currency...
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A USD-denominated fund is an investment that is producing a unit price in USD each day, and the performance of the Fund is also evaluated according to the base currency of USD.
Most global unit trusts are denominated in USD as a base portfolio currency. A SGD-hedged fund would therefore be taking a SGD/USD overlay hedge each day, to produce a unit price in SGD each day and hedging out any potential weakness in the USD versus SGD currency that may erode portfolio returns.
There would be slight premium one would be giving up here for this hedge (it is typically described as the “cost of hedging”) but would be worthwhile should the exchange rate of SGD/USD be volatile or if SGD is predicted to strengthen in the long-run.