Hedged vs unhedged (NZD)
A hedged fund neutralises foreign-currency movements back to NZD using forward currency contracts. An unhedged fund leaves foreign-currency exposure in place — returns include the NZD/foreign-currency move.
Funds investing in foreign assets face an additional source of return: movements in the NZD versus the foreign currencies of the underlying assets. A "hedged-to-NZD" fund uses forward currency contracts to neutralise this exposure, so returns reflect only the underlying-asset performance.
An "unhedged" fund leaves foreign-currency exposure in place. NZD weakness boosts foreign-asset returns in NZD terms; NZD strength reduces them. Over long periods, currency exposure adds volatility but typically does not add return.
Some funds offer both hedged and unhedged variants of the same underlying portfolio (e.g. Vanguard International Shares Select Exclusions Index Fund — Hedged and Unhedged classes). Hedging adds a small ongoing cost (typically 0.05–0.20% p.a.) and short-term cash-flow effects from settling forward contracts.