📝Hedge Ratios Increase Likely to Hit CAD, SEK, CHF Most: J.P. Morgan

Canadian pension funds’ overall FX hedge ratio is low in levels terms, and also relative to peers (Hedge ratios were at the bottom of their decade range in 4Q’24 for most in our sample ). While FX hedging behavior varies across funds, the low industry level nevertheless reflects a tendency to minimize FX hedging when applicable, and similarly a strategic willingness to hold sizable net (long) USD exposure for total return / volatility purposes. But this means Canadians do have significant scope to increase FX hedging from low levels, with anecdotal evidence suggesting that’s already begun. Still, more sizable shifts in FX hedging behavior are liable to take time, given the strategic nature of FX hedging decisions by this investor group. Large US equity holdings relative to GDP (82%) would make a rise in hedge ratios particularly FX-positive. - J.P. Morgan FX Strategy