Currency hedging cost
The recurring cost of running forward currency contracts to neutralise foreign-currency exposure on a hedged-to-NZD fund. Usually 0.05–0.20% per year, embedded in the annual fund charge.
A hedged-to-NZD fund uses rolling forward currency contracts to neutralise foreign-currency exposure on its offshore holdings. Maintaining the hedge has an ongoing cost: each forward contract's price reflects the interest-rate differential between the two currencies, and rolling contracts forward crystallises this differential as a small recurring expense.
In current NZ retail PIE disclosure, hedging cost is typically 0.05–0.20% per year for major currencies (USD, AUD, GBP, EUR, JPY), embedded inside the annual fund charge rather than disclosed as a separate line item. Hedging cost is higher for emerging-market currencies where forward markets are thinner.
A second short-term effect is cash-flow timing: settling forward contracts can require the fund to hold more cash on contract-roll dates. This shows up as slightly higher cash percentages on quarter-end Quarterly Fund Updates for actively hedged funds.
Related terms
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hedged-vs-unhedged
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.
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AFC · Total fund charge · MER
Annual fund charge
The total ongoing percentage charge paid out of a NZ managed fund each year — covering management fees, supervisor/custodian fees, audit, and other operating costs.
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QFU · Fund Update
Quarterly Fund Update (QFU)
A standardised FMA-mandated quarterly report each NZ retail managed fund publishes, summarising fees, returns, risk indicator, asset mix, top-10 holdings and fund size.