The data that shows whether it's worth hedging foreign currency investments against the dollar

An analysis of data from KSM and Tachlit tracking funds over nine years shows that despite the dollar weakening by about 10%, unhedged funds yielded higher returns and lower volatility. The average annual hedging cost was about 1.5%, but in practice it was higher. The article examines behavioral considerations alongside economic calculations.

Tomer Varon's article in Globes examines the advisability of hedging foreign currency investments against the dollar, using historical data from KSM and Tachlit tracking funds. The data shows that despite the dollar weakening by about 10% against the shekel from early 2018 to October 2026, unhedged funds yielded an average annual return about 1% higher than hedged funds (13.1% vs. 12% for KSM), with lower volatility. The average annual hedging cost was about 1.5%, but in practice it was over 2% during this period. The article notes that over the long term (1996–2025) the exchange rate has barely changed, but in certain decades the dollar weakened significantly. However, currency exposure actually cushions market declines: in 2022, the exposed fund fell by 7.35% compared to 21.5% for the hedged fund. The conclusion is that the hedging decision depends not only on economic calculations but also on the investor's ability to stick with the strategy over time, especially during periods of sharp volatility like 2025–2026.