Hedged Investments in Australia: Strategies for 2025

With global markets bouncing between optimism and uncertainty, Australian investors are increasingly searching for ways to safeguard their hard-earned wealth. In 2025, “hedged” isn’t just a buzzword – it’s a proactive approach to portfolio management that can limit downside risk while still participating in market gains. But what exactly does it mean to have a hedged investment, and how do Aussies put these strategies into action?

What Does Hedged Mean in Finance?

At its core, to be “hedged” is to take steps to offset potential losses in one investment by holding another position that’s likely to move in the opposite direction. Think of it as buying insurance for your portfolio – a way to soften the blow if markets turn against you. Hedging can be as simple as investing in defensive sectors, or as complex as using financial derivatives to protect against currency or interest rate swings.

In Australia, hedged strategies are often used by:

• Super funds managing currency risk for overseas assets

• Share investors seeking to protect gains from sudden downturns

• Businesses exposed to commodity price fluctuations

In 2025, with the Australian dollar swinging between US$0.62 and US$0.69, currency-hedged global equity ETFs have become a mainstay for local investors looking to smooth returns when investing offshore.

How Hedged Investments Work: Real-World Examples

Let’s break down how hedging plays out in practice for Australian investors:

• Currency-Hedged ETFs: Suppose you buy a US share ETF on the ASX. If the Aussie dollar rises, your overseas shares could lose value when converted back to AUD – even if the US shares themselves go up. Currency-hedged ETFs use financial contracts to offset this risk, so your returns are more closely tied to the performance of the actual shares, not currency moves. In 2025, funds like the iShares S&P 500 AUD Hedged ETF are popular for this reason.

• Options for Downside Protection: Investors can buy “put options” as insurance against share price falls. For instance, if you hold Commonwealth Bank shares and are worried about a correction, buying a put option lets you sell at a set price, limiting your losses if the market tanks.

• Commodities and Business Hedging: Australian miners often use futures contracts to lock in the price of iron ore or coal. This shields their earnings from wild swings in global commodity markets, especially relevant in a year where China’s demand is fluctuating and global trade tensions are high.

Hedging isn’t limited to professionals – many retail super funds now offer “hedged” and “unhedged” options for their international investments, letting members choose their preferred level of protection.

2025 Trends: Hedging in a Changing Financial Landscape

This year has brought unique challenges and opportunities for hedged strategies:

• Superannuation Funds: With APRA tightening risk management guidelines in 2025, more super funds are using hedged global equities to manage volatility and deliver smoother returns for members nearing retirement.

• Interest Rate Risk: As the RBA keeps the cash rate steady at 4.35% with hints of possible cuts, fixed income investors are exploring bond ladders and interest rate swaps to hedge against unexpected moves.

• Climate and ESG Risks: Investors are increasingly looking at “climate hedging” – building portfolios that are less exposed to carbon-intensive sectors, as government policy and investor sentiment shift towards net zero.

While hedging can reduce short-term risk, it’s important to weigh the costs. Currency-hedged ETFs, for example, may charge slightly higher fees, and options strategies require careful management to avoid eroding returns.

Is Hedging Right for You?

Hedged investments aren’t just for large institutions. Everyday Australians can benefit from understanding and applying these strategies – especially when investing overseas, nearing retirement, or simply wanting peace of mind in a turbulent market.

• Risk Tolerance: Are you comfortable riding out market swings, or do you lose sleep over volatility? Your answer can help guide your approach to hedging.

• Investment Horizon: Longer-term investors may accept more short-term volatility, while those closer to retirement often prioritise capital preservation.

• Cost-Benefit Analysis: Weigh the potential protection against the additional fees or complexity.

In 2025, more Australians are seeking “sleep at night” money – and hedged strategies can play a valuable role in that quest.