Australian-listed international ETFs come in two flavours: currency-hedged (locks the AUD value of returns; e.g. IHVV, HEDG) and unhedged (exposes you to AUD/foreign currency moves; e.g. IVV, VGS). The performance difference between the two over time is driven entirely by the AUD's movement against the underlying basket. Hedged returns ≈ underlying return − hedging cost (typically 0.05-0.15% extra fee plus a few basis points of forward roll). Unhedged returns = underlying return + AUD depreciation (or − AUD appreciation), all converted back to AUD.

The case for hedging: most Australian investors have AUD liabilities — mortgage payments, future retirement spending, daily expenses. Currency hedging removes a source of volatility that doesn't compensate you with extra return over the long run (the unhedged side eventually averages out to roughly the same total return, just with higher year-to-year swings). The case against hedging: the small fee drag plus the convenience that AUD typically falls during global crises, which actually helps unhedged returns at exactly the moment your portfolio is underwater.

The pragmatic compromise that most Australian portfolio guidance lands on: 50% hedged + 50% unhedged for international equity exposure. That captures the volatility-reducing benefit of hedging while keeping enough unhedged exposure to benefit from AUD weakness in stress events. The calculator above lets you stress-test specific scenarios.