What differs between the two versions
Unhedged (EUR) MSCI World ETFs are the most popular, and their return includes the USD/EUR exchange-rate effect: when the dollar strengthens against sterling or the euro, the return in your home currency improves, and vice versa. EUR Hedged ETFs, on the other hand, hedge out the currency risk: the return reflects only the equity performance of the index, stripping out the currency effect.
The cost of currency hedging
Currency hedging carries an implicit cost linked to the interest-rate differential between currencies, currently roughly 2 to 3% a year, embedded in the effective TER of the hedged ETF. During periods of high US interest rates, hedged ETFs can significantly underperform their unhedged equivalents: the TER shown on the factsheet is only the management cost — the total effective hedging cost is higher.
Which one to choose
For most European investors starting out, the unhedged version is the simpler and cheaper choice: no extra hedging cost, and over the long run the currency effect tends to average out. The EUR Hedged version mainly makes sense if you want to isolate the pure equity performance from the currency effect, or if you have a shorter horizon where currency volatility could disproportionately affect the result.
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