When you invest in global financial markets, part of your returns comes not only from how the investments themselves perform but also from the currencies in which they are priced. In other words, changes in exchange rates can affect the value of your investments when measured in euros.
For example, if your savings are in euros (EUR) but you invest in the US stock market, your investments are actually in US dollars (USD). This means that your returns in euros may differ from the performance of the US stock market in US dollars.
In 2025, US equities performed strongly up to the end of the third quarter, with the S&P 500 rising by 14.8% in USD terms. However, during the same period, the USD fell by 13.3% against the euro. As a result, the return for a euro-based investor was reduced to about 1.5%. This illustrates how currency movements can significantly affect your portfolio’s performance, even when the underlying investments do well.
To manage this kind of risk, investment managers can use hedging strategies. These are tools designed to reduce or offset the impact of currency fluctuations. For example, if the USD weakens against the euro, hedging can help protect your returns. Conversely, when the USD strengthens, maintaining some exposure to it can enhance returns.
For the Ancoria Pension Funds, we take a careful and disciplined approach to managing currency risk, in line with regulatory requirements that limit foreign exchange exposure to no more than 30% of each Fund. However, the actual, or strategic, level of currency exposure varies for each Pension Fund depending on its investment mix. We focus mainly on the equity portion of each Fund, where most international exposure lies.
Our investment committee monitors currency markets closely and manages foreign exchange risk. This approach proved particularly valuable in 2025, helping us preserve more of the strong US equity gains and cushion the effect of the weaker USD on your euro-denominated pension savings.
In summary, currency movements are a natural part of global investing. By managing foreign exchange risk in a disciplined way, we aim to provide more stable and predictable outcomes for your pension savings.