To Hedge CHF, or Not to Hedge CHF — That Is the Question

"To be, or not to be, that is the question — whether 'tis nobler in the mind to suffer the slings and arrows of outrageous fortune, or to take arms against a sea of troubles."

– William Shakespeare, Hamlet (Act III, Scene 1)

CHF.

Our home currency. And one of the strongest in the world.

It's a curse and a blessing simultaneously. Holidays abroad are cheap — and keep getting cheaper. But that very strength is a permanent headwind for Swiss businesses. The Swiss National Bank (SNB) has spent decades fighting it. Exporters suffer. And investors? They face a difficulty layer that an American investor simply doesn't have.

Here's why.

If you invest in a global index like MSCI World, roughly 97% of your portfolio is denominated in foreign currencies — 74% in US dollars alone. If the dollar falls 10% against the franc, your portfolio drops by almost the same amount. Without a single stock losing value.

And the dollar has been falling. For decades (chart 1). In 1971, one dollar bought you 4.30 francs. Today? 0.80. That's an 80% loss of purchasing power — a structural decline of roughly 2–3% per year over 50+ years.

So, this begs the never-ending dilemma Swiss investors face.

To hedge CHF, or not to hedge CHF.

That is the question.

Chart 1: USD/CHF Since 1971 — From 4.30 to 0.80. A Structural 2–3% Annual Decline

Lesson 1: The CHF Is a Safe Haven — And That Has a Price

Before we look at the data, you need to understand the mechanics — and the cost.

A currency-hedged investment holds equities in their original currencies but enters forward contracts to neutralize exchange-rate movements. You keep the stock performance but eliminate the currency component.

Sounds perfect.

It isn't.

Because hedging costs money. And the cost isn't a small fee buried in the TER. The true cost is the interest rate differential between the CHF and the foreign currency.

Right now: the Fed Funds rate sits at roughly 3.75%. The SNB policy rate? 0.0%. That differential — approximately 3–4% per year for USD exposure — is what you pay to hedge. For an MSCI World with 74% dollar exposure, the effective annual hedging cost is around 3%.

If markets deliver 7% per year in USD, you're giving up nearly half your expected return just to hedge. That's not a rounding error. That's a strategic decision.

Important: this cost isn't static. In the 2010s, rates were nearly identical on both sides. Hedging was practically free.

Today it's expensive. In five years?

Nobody knows.

But here's the other side: when the world panics — 2008, 2011, 2015, 2020 — global capital doesn't flee to dollars. It flees to francs. The CHF is the world's ultimate safe haven. And in exactly those moments, unhedged investors get hit twice: stocks fall AND the dollar weakens against the franc.

A double whammy.

That's the fundamental tension. Hedging is expensive in calm times.

Not hedging is brutal in crises.

Chart 2: The 5 decisive moments — when hedging mattered, or not

Lesson 2: If You Want to Sleep Well — Hedge

So what does 25 years of real data tell us? Look at chart 3 carefully.

From the peak of dotcom euphoria in February 2001 to today, hedged clearly dominated versus unhedged: +270% vs. +190%. Better return, lower volatility, smaller drawdowns, superior Sharpe ratio (the metric for risk-adjusted returns: 0.38 vs. 0.28).

But — and this is critical — we're cherry-picking.

Starting at peak euphoria biases the result toward hedging, because what follows is a crisis where the CHF strengthens and destroys unhedged returns.

That's why we ran three different starting points.

Let’s start digging into them, keeping in mind that the devil is in the details and that we’ll encounter plenty of ifs, buts, maybes, and noise.

For example:

• From the 2008 financial crisis through the 2011 euro crisis, hedging outperformed massively (chart 4) because we had a USD collapse in 2011.
• In the GFC, unhedged fell 51.5%. Hedged fell 48.7% (chart 2). Doesn't sound like much — but the math of drawdowns is merciless. Down 10%? You need 11% to recover. Down 30%? You need 43%. Down 50%? You need a full 100% — a double — just to get back to zero.
  • On top? In the first half of 2008, the USD lost 20% vs. the CHF. In the second half? It gained 27% versus the CHF. 2010 to 2011 (chart 4)? Again, down a whopping 40% followed by a rally of 40%. Volatility at its finest.

This is where hedging earns its keep.

Not in the calm years where it costs you 3%. In the crisis years where it prevents the extra 5–20% drawdown that takes years to recover from. The law of drawdowns is the most underestimated force in investing — and it's the strongest argument for hedging. Because here you will encounter the most expensive fee in investing that doesn’t appear on any statement.

You.

Studies show the average investor loses 1.5% in returns per year — not to fees, not to taxes, not to bad luck.

To their own emotions.

Emotions are part of “layer 3 – the invisible costs” of the true costs of investing. They make up around 50% of your yearly costs.

If your goal is to sleep well, compound steadily, and avoid the gut-wrenching double whammy of falling stocks plus falling dollar — hedge.

It helps keep you sane through the journey.

Simple, but of course there is a caveat.

Chart 3: MSCI World CHF vs. MSCI World CHF Hedged — 25 Years From Peak Dotcom Euphoria (2001–2025)

Chart 4: MSCI World CHF vs. CHF Hedged — From Peak GFC Fear (2007–2013): Hedging Through the Crisis Cycle

Lesson 3: Out of the Crisis — It's a Wash (But That's Changing)

Now flip the script.

Start at the bottom of the GFC in 2009, when markets were recovering and the dollar was stabilizing — and the picture changes entirely (chart 5).

From October 2009 to today, hedged and unhedged delivered nearly identical returns. A Nullsummenspiel — a wash.

Why?

Because in recovery phases, the dollar often strengthens (or at least doesn't weaken), so the hedging cost roughly offsets the currency protection. And crucially: from 2010 to 2021, interest rates were practically zero everywhere.

Hedging was free.

That era is over.

Today, with the Fed at 3.75% and the SNB at 0.0%, hedging costs are real and substantial. The free lunch is gone. Every Swiss investor holding a hedged MSCI World ETF is now paying roughly 3%+ per year for the privilege — and that only makes sense if you believe the CHF will continue to strengthen by at least that amount.

Over 55 years of data, it has. But past performance, as they say, is no guarantee for future performance.

One more thing many investors miss: if you invest through Pillar 3a — Säule 3a — the BVV2 regulation limits your foreign currency exposure to a maximum of 30% without hedging. There are some loopholes but for many Swiss investors, the question is partially answered by law.

You must hedge a significant portion.

Full stop.

Chart 5: MSCI World CHF vs. CHF Hedged — Out of GFC (2009–2025): Nearly Identical — But Hedging Is No Longer Free

The arvy Take

Over the long term, hedging in Switzerland delivers slightly better risk-adjusted returns, significantly lower drawdowns in CHF shock moments, and more continuous compounding.

But none of these properties is free.

This isn't a return optimization decision. It's a risk management decision.

And the right answer depends on your specific situation — your age, your investment horizon, your emotional tolerance for drawdowns, and your planned CHF expenses.

If you're young, have decades ahead, and can stomach a 50% drop without panic-selling — unhedged gives you full exposure to global growth, including currency appreciation in recovery phases.

If you're closer to retirement, value sleep over maximum return, or invest through Pillar 3a with its regulatory constraints — hedging makes more sense than most people think.

We wrote the full 25-year data analysis with all charts, tables, scenarios and a decision matrix on our blog.

Now you have the data, the math, and the Swiss reality to make the decision informed.

Hamlet's dilemma was whether to endure the slings and arrows of outrageous fortune — or to take arms against them. The hedging question is the same: do you accept the currency risk and hope it washes out, or do you pay the price to eliminate it?

Shakespeare never gave Hamlet an easy answer. Neither do we.

But at least now you know the cost of both.