Rand hedge

Definition

Rand hedge refers to an investment strategy used by investors in South Africa to reduce the effects of currency depreciation or volatility on their investment returns.

What is rand hedge?

Rand hedge involves diversifying investment holdings across different currencies, particularly those that have historically appreciated against the South African rand. Commonly used currencies for this purpose include the US dollar (USD), euro (EUR), British pound (GBP), and Swiss franc (CHF). By doing so, investors aim to protect the value of their investments against potential depreciation of the rand.

Investors pursuing a rand hedge strategy often allocate capital to international assets, such as foreign stocks, bonds, real estate, and commodities. These assets provide exposure to global markets and currencies, reducing the portfolio’s reliance on the performance of the South African economy and currency. 

The allocation to rand hedge assets within an investment portfolio depends on individual investor preferences, risk tolerance, and market. Some investors may allocate a significant portion of their portfolio to foreign currency-denominated assets, while others may maintain a more balanced approach with a smaller allocation to rand hedge strategies.

Example of rand hedge

An example of a rand hedge strategy would be a South African investor purchasing shares of multinational companies listed on foreign stock exchanges. These companies generate a significant portion of their revenue from international markets and are less influenced by fluctuations in the South African rand. By holding shares in these companies, the investor aims to protect their investment portfolio from the negative effects of rand depreciation, as the value of the foreign currency-denominated shares tends to increase when the rand weakens.