When we see economic news headlines saying "the baht weakens," many people’s first reaction is worry, because it means our living costs might rise, imports become more expensive, fuel prices increase, or those planning to travel abroad will get less foreign currency for their baht.
But in investing, there are always two sides to the coin. What seems like a “crisis” can turn into a “golden opportunity” for investors who understand how Unhedged foreign funds work.
Thairath Money takes you step by step to explore what these funds are, why they can profit even when stocks don’t move, and how we can benefit from this situation.
When we buy mutual funds investing in foreign stocks (Foreign Investment Funds - FIF), the profits or losses usually come from two combined sources:
To manage currency fluctuations, fund management companies (AMC) offer two main options for currency handling: Hedged and Unhedged funds.
Imagine exchanging 3,000 baht for U.S. dollars (assuming an exchange rate of 30 baht = 1 USD). You get 100 USD to buy one American stock.
After one year, the stock price stays the same at 100 USD, but the baht weakens to 35 baht per dollar.
Now let’s see what happens when selling the stock and converting back to baht under these two fund types.
1. Hedged Funds (Currency Risk Protected)
The concept here is, “I only want the stock gains, no currency effects.” The fund enters into forward currency contracts to "lock in" the exchange rate at about 30 baht per dollar.
So, selling the 100 USD stock returns 3,000 baht—no gain since the stock price didn’t change. This fund type is stable and predictable.
2. Unhedged Funds (No Currency Risk Protection)
If we don’t hedge currency risk and let the exchange rate float naturally, we get profits from both stock and currency. Selling the 100 USD stock and converting at the current rate of 35 baht per dollar yields 3,500 baht.
This means a free profit of 500 baht (about 16%) even though the stock price didn’t rise at all. This is the appeal of Unhedged funds when the baht weakens.
Reading this, some may think, “Then just buy Unhedged funds.” But hold on—currency direction is one of the hardest things to predict in finance.
If the situation reverses and the baht strengthens (e.g., from 35 to 30 baht per dollar), Unhedged funds lose the currency profit. If the stock price also drops, we face "double losses"—both on stocks and currency.
Or even if stocks rise 10%, but the baht strengthens 10%, gains from stocks are wiped out when converted back to baht.
While accepting currency risk can increase profit opportunities, it also risks the baht moving against your expectations.
According toTISCO Wealth,the choice of fund depends mainly on your "acceptable risk level."
For those who don’t have time to track investments, choosing funds managed by experts with currency-hedging policies is likely better, as it delivers returns aligned with the investment policy without worrying about exchange rate risk.
Usually, we hold assets with low, medium, and high risk. Adding currency risk (Unhedged) might unnecessarily increase overall portfolio risk.
Meanwhile,K WEALTH,states that the currency hedging policy greatly affects investment returns, so how to choose appropriately?
Hedged policies suit investors without time to monitor markets who want professionals to manage their money, and are ideal for "long-term investors" focusing on policy-driven returns and avoiding exchange rate volatility.
Unhedged policies suit "short-term speculative investors" who can closely follow exchange rate trends, requiring assessment of baht movements.
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