By Justin May, Portfolio Manager
Recent headlines about the weakness of the U.S. dollar have many investors wondering: how can I add foreign currency exposure to my portfolio to help hedge against further declines? Fortunately for many, they already hold foreign currency by proxy, through investment in non-U.S. stocks.
Stocks are generally bought and sold using the currency of the company’s home country. So, if I buy Samsung (a Korean) stock, I convert my U.S. Dollars into South Korean Won to buy the stock. When I sell my Samsung stock, I receive South Korean Won, which I convert back to dollars. The return on my investment is therefore based on two factors: the performance of my Samsung stock, and the performance of the South Korean Won relative to the U.S. Dollar. An investment in a non-U.S. company is, in part, an investment in a foreign currency.
Some background: the U.S. dollar has appreciated greatly over the past years compared to most of the world’s major currencies. See the below graph and note the scale – common currencies like the Euro, British Pound, and Japanese Yen have all declined about 20% relative to the U.S. dollar. These declines have contributed to non-U.S. stocks underperforming U.S. stocks over this period by a wide margin.
Total Returns of Global Currencies in USD
1/1/2015 – 12/31/24
In 2025, the trend has reversed. With tariffs and tariff threats, trade wars, and growing doubt about continued U.S. economic dominance, the value of the U.S. dollar relative to other countries has dropped significantly. In just 4 months, the Euro and Yen have risen nearly 10% relative to the dollar, with the majority of currencies showing positive returns:
Total Returns of Global Currencies in USD
1/1/2025 – 4/30/25
This effect has helped boost the performance of non-U.S. stocks, which outperformed U.S. stocks by almost 14% in the first 4 months of 2025.
At Old Peak, we’ve recommended investing in non-U.S. stocks during periods of underperformance and outperformance. When faced with this year’s currency crisis, our strategy remains consistent. We diversify stock portfolios to capture returns in a wide range of market outcomes, because nobody can predict tomorrow’s winner. It’s impossible to predict future currency values, and even harder to predict the effect of changes in currency value on the global economy. We recommend investing internationally primarily to add diversification in your portfolio through additional company and country exposure, but exposure to foreign currencies via investment in non-U.S. stocks can help to lower volatility and boost performance.
Currency data source: WM/Reuters via Dimensional Returns Web
U.S. stocks (Russell 3000 Index) data source: Frank Russell Company via Dimensional Returns Web
Non-U.S. stocks (MSCI ACWI ex USA IMI Index net div.) data source: MSCI via Dimensional Returns Web
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