For many Swiss investors, currency hedging—especially against the dollar—has long been standard practice. The rationale is clear: the Swiss franc is viewed as one of the world’s most stable, low-risk currencies. However, long-term data shows that this strategy has eroded returns increasingly over the past 15 years. 

The Turning Point After the Eurozone Crisis

For years, the trend seemed almost immutable: the franc steadily appreciated against the dollar. Many investors treated this trajectory as an economic constant. However, after the 2011 eurozone crisis, that logic began to falter. The Swiss National Bank (SNB) intervened heavily in currency markets to curb excessive franc strength, aiming to protect Switzerland’s export competitiveness.

«In hindsight, hedging turned out to be a drag on returns.»

From 2015 onward, the SNB added an extraordinary policy tool: deeply negative interest rates, which made CHF-denominated assets increasingly unattractive for global investors.

Since then, the USD/CHF exchange rate has moved within a remarkably narrow band—between 1.00 and 1.20—driven less by market forces than by monetary policy. At the same time, the U.S. Federal Reserve maintained meaningfully higher interest rates, giving USD-based fixed-income instruments a persistent yield advantage. 

The Long-Term Cost of Hedging

Investors who hedged their USD exposure felt protected—yet forfeited a significant share of their returns. A 12-year dataset illustrates the magnitude of the performance drag:

Global Equity ETF (iShares MSCI World), December 2012–December 2025

• In USD: +371.50%
• Converted to CHF (unhedged): +296.47%
• In CHF with currency hedge: +290.89%

The culprit is the interest-rate differential. Hedging typically uses forward contracts that incorporate higher U.S. interest rates to the detriment of Swiss franc investors. In effect, hedged investors surrender part of the U.S. yield premium to their counterparty—year after year. 

Hedging with Precision, Not Reflex

For equities—volatile, growth-oriented, globally diversified—currency hedging rarely adds value. It incurs costs, reduces geographic diversification, and seldom provides meaningful risk reduction.

Income-oriented assets such as private credit or real-estate financing tell a different story. If cash flows need to be in Swiss francs, hedging can be justified. But even then, the costs can add up—steadily eroding returns over longer horizons. 

The Swiss Franc Today: Hedge or Stay Exposed? 

The instinct to hedge everything back into Swiss francs should no longer be considered a default. The franc no longer appears to be in a structural appreciation cycle, and the current rate environment works against CHF investors. Hedging costs should therefore be evaluated deliberately—not accepted out of habit. 

«For long-term equity portfolios, avoiding currency hedging can be the more rational choice.»

Over long horizons, equity fundamentals tend to outweigh currency fluctuations. For income-generating assets like bonds or private credit—especially when needed to fund living expenses—hedging may still be appropriate, notably during crises or when cash flows are highly predictable.

Investors who focus exclusively on CHF-denominated assets confine themselves to a narrow, potentially low-growth market and forgo the long-term benefits of global diversification.

Mathias Niederhauser is Managing Director, Digital Solutions at Petiole Asset Management.

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