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I earn in CHF, so I'm considering the iShares S&P 500 CHF Hedged ETF as a way of investing in the S&P 500 while also protecting myself against fluctuations in the USD/CHF exchange rate since inflation is higher in the US than it is in Switzerland at the moment.

Details of the ETF are here: https://www.ishares.com/ch/individual/en/products/251406/ishares-sp-500-chf-hedged-ucits-etf I'm just confused about one part of the description here - "hedges USD currency [...] back to CHF".

I understand that they are taking out future contracts every month to hedge against currency fluctuations, but I'm not sure which direction they are being taken out in. Are the futures taken out against CHF or USD?

Since it's denominated in CHF I think the futures are taken out against USD but I want to be sure that I'm understanding this correctly.

If anyone has resources I can use to understand this terminology better in general that would also be great. I've found it difficult to Google the true meaning of that sentence.

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"Single country and large market capitalization companies exposure and USD exposure hedged back to CHF monthly"

I think its important not to get too bogged down in what sort of instruments would be used to construct this FX hedge and just understand the concept the statement is trying to convey. You've keyed in on futures as a hedging instrument but there is nothing in this sentence that implies the ETF uses futures to hedge FX exposure. The fund could use futures, could use swaps, could use forwards, could use some combination of all three, we don't know.

What we do know is the fund is denominated in CHF and the assets the fund holds are denominated in USD, or stated alternatively, the fund's price exposure is in USD and its FX exposure in in USD/CHF. So each month, the fund manages a hedge such that the sum value of its currency hedges (hedging USD/CHF) equals the total value its USD assets. The next month, the fund's USD exposure will change and the USD/CHF hedge will have to be resized as well.

The hedge is "taken out" in USD/CHF (USD/CHF being the price on 1 CHF in USD). Hedging USD exposure back to CHF.

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  • Thanks for the detailed answer. Yes you're right about not being concerned about the details of the hedge strategy, I actually only mentioned that in an attempt to deter people from getting caught up in trying to explain how the hedge works haha. Your answer has cleared up my confusion anyway.
    – Nathanos
    Apr 2, 2022 at 7:35

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