Currency-hedged fund
A currency-hedged fund is a fund that invests in foreign or but uses financial contracts to offset, or hedge, the effect of exchange rate movements on returns. The goal is to let an investor capture the performance of the foreign holdings themselves, without the added swings that come from the foreign currency strengthening or weakening against the dollar.
Without , a US investor's return on a foreign fund depends on two things moving together, how the foreign perform in their local currency, and how that local currency moves against the dollar. A currency-hedged fund uses forward contracts or to neutralize the second component, so the fund's return should track the local currency performance of its holdings much more closely than an unhedged version of the same would.
Currency is not free, it involves an ongoing cost to maintain the hedge, and it removes a source of potential gain as well as loss, if the foreign currency happens to strengthen against the dollar, a currency-hedged fund will not benefit from that move the way an unhedged fund would. Investors generally reach for currency-hedged funds when they have a view that the dollar will strengthen, or when they simply want their foreign equity or exposure to reflect business performance rather than currency swings.