CHF Hedged vs Unhedged: 25 Years of MSCI World Data
May 10, 2026
13 min read
arvy's Teaser: "Should I hedge my ETFs to CHF or not?" — that's one of the most common questions we get at arvy. The standard answer is "don't hedge, currency washes out long-term." We looked at this with real data: 25 years of MSCI World CHF vs MSCI World CHF Hedged. The result isn't as simple as most articles suggest — and there's a regulatory factor for Swiss investors that almost nobody mentions.
TL;DR — The Answer in 60 Seconds
- → Hedging isn't free. You pay the interest rate differential between CHF and the foreign currency — currently around 3% per year for a full MSCI World hedge (USD hedge alone: ~3.75%). But Swiss ETFs don't show this cost directly because it's embedded in the performance, not the TER.
- → Over 25 years, hedged outperformed in Switzerland — with better risk-adjusted return (Sharpe 0.38 vs 0.28) and lower drawdowns. This is due to structural CHF strength over the past 25 years, not the hedge itself.
- → arvy's position: We tilt toward more hedged / higher CHF exposure — for better risk-adjusted returns AND because BVV2 limits Pillar 3a portfolios to maximum 30% foreign currency without hedging. For many Swiss investors, the question is partially settled by regulation.
Why this question matters — and why it's hard
If you live in Switzerland, earn in CHF, and invest in an MSCI World ETF, you have a problem an American doesn't have: ~74% of MSCI World is denominated in US dollars, plus ~10% in EUR, ~5–6% in JPY, ~3.5% in GBP, and only ~3% in CHF (Nestlé, Roche, Novartis & Co.). In total, around 97% of your MSCI World is in foreign currencies. If the USD falls 10% against the CHF — and that has happened repeatedly over the past 25 years — your portfolio drops by the corresponding amount, without a single share losing value.
The solution seems simple: "currency-hedged" ETFs. They eliminate exchange-rate risk through forward contracts. You keep the equity performance, but without the currency dependency. Sounds perfect.
It isn't. Hedging has costs, and they're not trivial. And when the CHF weakens (like in 2024 under the Trump trade), you lose the appreciation of your foreign assets with a hedge. The question is: does the protection justify the cost?
We looked at the data — and the result isn't what most Swiss finance blogs write.
How currency hedging mechanically works
Before we get to the data analysis, a quick mechanics primer. Skip the next section if you already know how this works.
A currency-hedged ETF does the following: it holds the equities in their respective local currencies (USD, EUR, JPY, etc.), but simultaneously enters into forward contracts that neutralise exchange-rate risk for a defined period (usually 1 month).
The hedge principle in one example
You hold $100,000 in US equities. The exchange rate today: 1 USD = 0.90 CHF, so CHF 90,000. You enter a forward contract: "In 30 days I'll sell $100,000 at a rate fixed today." Whatever the USD/CHF rate is in 30 days — you get the fixed rate. Your currency risk is neutralised for 30 days. After 30 days, the hedge is renewed (rolled), based on the then-current equity value.
Important: hedging eliminates only currency risk, not equity risk. An Apple share that drops 10% in USD also drops 10% in the hedged portfolio. What hedging does: it decouples equity performance from currency movement.
What hedging really costs — the interest rate differential
Most investors think the hedge is a small fee — like a TER markup. That's wrong. The true cost of hedging is the interest rate differential between CHF and the foreign currency. That's mathematics, not marketing.
The hedging math
Annualised hedge cost ≈ Foreign currency rate − CHF rate
Current rates (May 2026):
USD (Fed Funds): ~3.75% · EUR (ECB Deposit): ~2.0% · CHF (SNB policy rate): 0.0%
Therefore:
USD hedge costs ~3.75% per year
EUR hedge costs ~2.0% per year
JPY hedge costs ~0.5% (BoJ raised rates modestly in 2024–2025)
For an MSCI World with ~74% USD, ~10% EUR, ~5–6% JPY, ~3.5% GBP: effective hedge cost ≈ ~3% per year
This is the uncomfortable truth: hedging costs around 3% per year on paper for an MSCI World portfolio. But a portion of this cost is compensated over time through currency movement (this is the interest-rate parity principle — higher USD rates tend to be offset by USD depreciation against CHF). Chart 3 shows this clearly: over the 16 years since the GFC trough, the net effect was almost zero. But short- to medium-term (1–3 years), this 3% becomes very tangible when CHF doesn't appreciate. This doesn't show in the TER — the TER of an MSCI World CHF Hedged ETF is usually only 0.05–0.10% higher than its unhedged counterpart — the real cost is hidden in the performance.
Important: the rate differential isn't static. In the 2010s, USD and CHF rates were practically identical (both ~0%). Hedging was nearly free. Today it's expensive. In 5 years? Nobody knows.
Three charts, three answers — the cherry-picking lesson
Now the interesting part: what do the data show? We placed MSCI World CHF (unhedged) and MSCI World CHF Hedged side by side from 2001 onwards. And the result depends brutally on when you start looking.
"Don't trust any statistic you didn't fake yourself."
This quote (often attributed to Churchill, probably apocryphal) is nowhere truer than in investment backtests. Hedge proponents show charts that support their thesis. Hedge opponents do the same. Both are right — and both are dishonest if they show only one chart.
We're showing you all three.
Chart 1: From peak dotcom (February 2001) to today — hedged wins clearly
If you'd started at the peak of dotcom euphoria (February 2001), hedged would have nearly doubled your wealth versus unhedged over 25 years:
The reason: we started here at the peak of risk appetite. When markets crash (dotcom 2001-2003, financial crisis 2008), global capital flees to safe-haven CHF. The CHF appreciates — and unhedged investors lose twice: once on equities, once on currency.
Chart 2: From peak GFC fear (December 2007) to 2013 — hedging through the crisis cycle
From the peak of financial crisis fear (December 2007) through the end of 2013, the same pattern shows up — even amplified: unhedged delivered a NEGATIVE return of -1.07% per year over 6 years. Hedged delivered +1.87%. A difference of nearly 3 percentage points per year — over 6 years that's enormous.
The killer in this period was 2011: the EUR debt crisis drove global capital into CHF, which appreciated within months from 1.20 to 0.71 against the EUR. An unhedged Swiss investor with MSCI World experienced a drawdown of -21.2% peak-to-trough in CHF (Feb 2011 → Aug 2011) — the hedged equivalent lost only -11.4% in the same window. Nearly 10 percentage points of hedge protection at the worst of the EUR crisis. For specific US indices like the S&P 500 in CHF, the CHF-driven drawdown was even more pronounced. The Swiss unhedged investor paid the full price for the global risk-off move.
The merciless math of drawdowns
"Just" 2.8 percentage points difference between -51.5% (unhedged) and -48.7% (hedged) sounds small. But the recovery math is asymmetric and merciless:
- Down 10% → +11% needed to recover
- Down 20% → +25% needed
- Down 30% → +43% needed
- Down 40% → +67% needed
- Down 50% → +100% needed — a full double
- Down 60% → +150% needed
Concretely in the GFC: a portfolio at -51.5% needs +106% to recover. A portfolio at -48.7% needs "only" +95%. The seemingly small difference becomes a return difference of years — the time the deeper drawdown has to give you back. For the 2011 EUR crisis (-21.2% vs -11.4%) the asymmetry is even sharper: +27% needed vs +12.9% needed. Practically two different investor experiences from the same market.
What's happening under the surface — USDCHF volatility
To understand what drives these drawdowns for a Swiss investor, let's look at the actual underlying: the volatility of the USDCHF exchange rate.
The story of the first half of 2008: the USD lost 20% against the CHF in 6 months. Alone. Not because equities fell — purely through the exchange rate. In the second half of 2008 the reversal: USD gained 27% against the CHF, as risk-off mode drove global capital into USD (the Lehman phase: USD briefly becomes the global liquidity anchor).
2010 to 2011 was even more dramatic: USD fell 40% against the CHF — before rallying back roughly 40% from mid-2011 to mid-2012. As a Swiss investor, you feel this volatility directly in your MSCI World portfolio — because ~74% of your equities are denominated in USD.
This isn't abstract statistics. These are moves of 20-40% in single 6-12 month windows — on the exchange rate alone, without any equity moving an inch. Volatility at its finest — and volatility you take on directly in an unhedged portfolio, on top of equity volatility.
How this shows up in the portfolio
When we visually overlay USDCHF moves on the MSCI World CHF vs Hedged data from 2007-2013, the mechanic becomes visible:
The yellow line (hedged) and the blue line (unhedged) move in lockstep at the equity level — both react to underlying equity performance. But: the unhedged investor takes on every USDCHF move on top. In phases of "USD collapse" (red arrows), the drawdown amplifies. In the one phase of "USD strength" (green arrow, second half of 2008), unhedged temporarily catches up — but then 2010-2011 brings the EUR crisis, and the gap reopens.
The net result over 6 years is clear: hedged delivers materially better CHF return and lower maximum drawdowns — at exactly the time you, as an investor, need the pain the least.
The lesson: The unhedged version isn't just "the ETF, but without the hedge". It's the ETF plus an active currency bet on USD — whether you want it or not. Anyone who lives in CHF, spends in CHF, thinks in CHF — has a USD bet embedded in an unhedged MSCI World. That bet can pay off (2024 Trump trade: +27.8% instead of +16.9%) or lose (2011 EUR crisis: -21.2% instead of -11.4%) — but it's there whether you understand it or not.
Chart 3: From the bottom (October 2009) to today — almost zero-sum
And now the twist: if you'd started at the bottom of the financial crisis (October 2009), both strategies would have performed almost identically:
16 years of bull market after the financial crisis — and hedging delivered almost nothing. Unhedged 9.22% CAGR, hedged 9.47%. The difference: 0.25pp per year. Practically zero-sum.
The honest lesson
Cherry-pick the start at peak (crisis ahead) → hedged wins clearly. Cherry-pick the start at the bottom (bull market ahead) → zero-sum.
But: in ALL three periods, hedged delivers a better or equal Sharpe Ratio. Risk-adjusted, hedged never lost — only won less often. The difference: hedged delivers more continuous compounding with less stress.
The 5 decisive moments — when hedging mattered
Statistics over 25 years obscure what happens in individual events. Let's look at the five decisive moments of the last 20 years:
What this table shows:
Hedging helped in 4 out of 6 major market events — from the 2011 EUR crisis (+9.8pp) through the 2015 SNB Frankenschock (+8.6pp) to 2025 USD weakness (+8.1pp). It only hurt brutally in CHF weakness phases (2024: -10.9pp opportunity cost). 2024 and 2025 combined: roughly a wash with a slight unhedged advantage. Net over the past 20 years: hedging clearly helped — but year-by-year remains a coin flip, because nobody can time the next move.
The crucial point: nobody knows whether the next major event is a 2015-style CHF shock or a 2024-style USD trade. That's exactly the point of hedging — you take volatility off the table in exchange for expected costs.
Why CHF is structurally different
The standard argument against hedging is: "over the long term, currency washes out." For most investors that's true. For Swiss investors it isn't — and that's important to understand.
Three reasons why CHF is structurally different:
1. Safe-haven status: CHF is one of the world's three safe-haven currencies (alongside gold and USD). In every global crisis — dotcom 2001, financial crisis 2008, EUR crisis 2011, COVID 2020, banking crisis 2023 — capital flows into CHF. That means: precisely when your equities fall, your foreign currency exposure depreciates relatively too. Double damage.
2. Low inflation: Switzerland has had one of the world's lowest inflation rates for 30 years (~1% on average vs ~2.5% in the Eurozone, ~2.7% USA). This means: CHF appreciates in real terms against EUR and USD over the long run. Over 25 years that's ~30% cumulative appreciation — which an unhedged investor simply loses.
3. Structural trade surpluses: Switzerland has had massive export surpluses for decades (~6-8% of GDP). This drives CHF structurally higher. A Eurozone with chronically deficit-running south, a US with chronic trade deficits — both tend structurally toward weakness against CHF.
From this it follows: The standard wisdom "currency washes out" applies to German, French, or American investors. For Swiss investors, it has not historically held.
When does hedging make sense? The decision framework
Enough theory. When should you hedge, when not? Here's our framework:
When unhedged makes sense
→ You have a very long investment horizon (20+ years)
→ You're young and in the accumulation phase
→ You can emotionally tolerate 50%+ drawdowns without selling
→ You don't need the money for a specific CHF expense in the next 10 years
→ You want to minimise hedge costs (currently ~3% p.a. for MSCI World)
When hedged makes sense
→ You're approaching retirement or already retired (CHF expenses dominate)
→ You want continuous, calm compounding without currency noise
→ You're planning a major CHF expense in the next 5-10 years (house purchase, etc.)
→ You'd sell at a 50%+ drawdown — hedging reduces nominal drawdown in CHF shock cases
→ You invest via Pillar 3a — see next section
Note the last point in the "hedged" block: "You'd sell at a major drawdown." This is the most important argument for hedging in practice. The theoretically optimal investor is 100% unhedged, holds forever, never gets nervous. The real investor sells at the bottom — and hedging reduces the probability that the bottom gets deep enough to flip you emotionally.
We call this the "emotional hedge" — hedging as protection not just from currency, but from your future, panicked self.
What we do at arvy — and why
Time for the honest position. Here's how we approach this topic at arvy:
We tilt toward more CHF exposure / more hedging. Not 100% — but meaningfully more than the average Swiss ETF investor. Three reasons:
1. Risk-adjusted returns: The 25-year data clearly show — Sharpe of hedged is better. We love continuous, calm compounding. Hedging delivers that.
2. Drawdown management: In CHF shock cases (2011, 2015), unhedged lost double-digit additionally. We prefer "no permanent loss of capital" and controlled drawdowns. That's quality investing logic (→ The Tortoise Problem) applied to currency.
3. BVV2 — the point nobody mentions:
BVV2 for Pillar 3a investors — important nuance
Per BVV2 Art. 55 lit. e (applied analogously to Pillar 3a institutions):
A maximum of 30% of total assets may be held in foreign currencies without currency hedging.
Important nuance: most providers apply this limit at the foundation level (averaged across all customers), not at the individual portfolio level. This means in practice: an individual customer may hold more than 30% foreign currency without hedging — depending on the provider — as long as the foundation as a whole stays within the limit. VIAC, for example, allows up to 60% foreign currency exposure per individual portfolio, while other providers are stricter.
In practice this means: a 100% unhedged MSCI World (~97% foreign currency) is not available as a sole 3a strategy at most providers — the provider must either hedge or you'll be forced to add CHF equity exposure. Investors wanting a 100% equity allocation typically end up with ~60–70% in hedged or CHF positions. Sources: Fedlex BVV2 Art. 55, ZugerKB Investment Guidelines.
For most Swiss investors, the question "do I hedge or not?" is therefore partially predetermined for Pillar 3a by regulation. There's a good reason for this: 3a assets are pension capital. They should deliver CHF in retirement — not currency bets.
For free assets you have the choice. But our position at arvy: for free assets we also tilt toward more CHF / more hedging, because long-term risk-adjusted returns are better for Swiss investors.
FAQ — The most common currency hedging questions
What's the difference between "hedged" and "unhedged" ETFs?
A hedged ETF eliminates exchange-rate risk of the underlying equities against your home currency (CHF). An unhedged ETF leaves you fully exposed to the exchange rate. Both contain the same equities — the only difference is whether currency movement affects your performance.
How much does currency hedging effectively cost per year?
Hedge costs equal the interest rate differential between CHF and the foreign currency. Currently (May 2026): USD hedge ~3.75% per year, EUR hedge ~2.0%, JPY hedge ~0.5%. For an MSCI World (mostly USD) the effective hedge cost is currently around 3% per year. These costs aren't shown in the TER — they're hidden in the performance.
Is hedging worthwhile for an MSCI World ETF long-term?
Over 25 years (2001-2025), hedged showed a better CAGR (5.41% vs 4.37%) and better Sharpe Ratio (0.38 vs 0.28) than unhedged. Over shorter bull market phases (2009-2025) it was zero-sum. Cherry-picking the period determines the result. Risk-adjusted, hedged hasn't lost in any period of the last 25 years.
What's the BVV2 rule for foreign currencies in Pillar 3a?
Per BVV2 Art. 55 lit. e (applied analogously to Pillar 3a), Pillar 3a portfolios may hold a maximum of 30% in foreign currencies without currency hedging. Important nuance: this limit is typically applied at the foundation level, not per individual customer. VIAC, for example, allows up to 60% foreign currency exposure per portfolio, while others are stricter. In practice: a 100% unhedged MSCI World (~97% foreign currency) isn't available as a sole 3a strategy at most providers.
Should I switch to hedged at retirement?
Yes, in most cases. When your expenses are in CHF and your investment horizon shrinks to 10-15 years, currency risk increasingly dominates. Hedging reduces the probability that a 2015-style Frankenschock just before or during retirement drastically reduces your wealth. See also our article on the pension fund decision.
Is partial hedging a good strategy?
Yes. A 50/50 mix of hedged and unhedged positions is a reasonable default strategy for investors who can't decide. You take half the hedge costs, but also only half the currency risk. Over very long horizons and for most Swiss investors, that's a good compromise.
Which CHF-hedged ETFs exist for Swiss investors?
The most important: iShares MSCI World CHF Hedged UCITS ETF (Acc) — Ticker IWDC, ISIN IE00B8BVCK12, TER 0.55%, plus the newer UBS Core MSCI World UCITS ETF hCHF acc — Ticker WORLD, ISIN IE000N6LBS91, TER 0.09% (launched March 2024). Plus variants from Swisscanto and SPDR. Note: TER doesn't show the real hedge costs (rate differential). Better to compare the performance difference vs. the unhedged counterpart.
How important is currency hedging for bonds?
Very important. For bonds, currency movement is often larger than the coupon yield. A 5% USD bond that experiences 10% USD weakness delivers -5%. For bond ETFs for Swiss investors, hedged is practically always the right choice. For equities it's a trade-off — for bonds it's clear.
The honest conclusion
Summarising what the data show:
"Over the long term, hedging doesn't wash out in Switzerland — it delivers slightly better risk-adjusted returns, significantly lower drawdowns in CHF shock moments, and more continuous compounding. But: none of these properties is free."
The standard answer "for long horizons, don't hedge" is too simplified for Swiss investors. The data show: over 25 years, hedged won even with a long horizon — because of structural CHF strength and safe-haven properties.
Our recommendation — simplified:
One last thought: this isn't the article where we give you the answer. Hedging is a risk management decision, not a return optimisation decision. The right answer depends on your specific situation — your age, investment horizon, emotional tolerance, planned CHF expenses.
But: now you have the data, the math, and the Swiss reality to make the decision informed. That's more than most Swiss finance blogs deliver.
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Written by Thierry Borgeat, Co-Founder of arvy. Reviewed by Patrick Rissi, CFA, and Florian Jauch, CFA. Data source: MSCI World CHF and MSCI World CHF Hedged Total Return Indices, February 2001 to December 2025, Bloomberg. Last updated May 2026.
Disclaimer: For general information only. Not personal investment advice. Past performance is not a reliable indicator of future results. arvy is a FINMA-regulated asset manager with KAG licence (Art. 24).
Disclaimer: For general information only. Not personal investment advice. Past performance is not a reliable indicator of future results. arvy is a FINMA-regulated asset manager with KAG licence (Art. 24).
