White paper: Going unhedged in frontier markets

October 18, 2017

Providing local currency funding to frontier market has proven to be a key aspect of impact investing.

Through its investment practice and experience, Symbiotics has moved one step further: building unhedged local currency portfolios for clients. The company has originated 420 transactions for more than USD 600M volume in unhedged investments since 2010. Through a historical analysis of hedging costs and currency movement, it is observed that investors could have benefitted from a material premium, rewarding them for such risk taking over time.

Since 2005, this premium for unhedged investing would average at 3.7%, sometimes reaching 10% for a diversified basket portfolio. On the contrary, a hedged strategy would result in a premium of 2.5% at most during periods of strong local currency weakness.

Overall, going unhedged appears to be an interesting strategy for investors with patience and some risk tolerance.