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"Investing offshore provides a risk mitigation benefit as a result of owning companies denominated in foreign currency. In the event of economic or financial market downturns that aren’t idiosyncratic to a particular country, the Australian dollar has a tendency to depreciate relative to a basket of developed market currencies. This depreciation provides a partial hedge to a falling portfolio value at a time when it is most valuable. Figure 21 highlights the historical inverse correlation between the USD and the S&P 500 over the past twenty years.

The ultimate barometer of the risk characteristics of an asset class was the realised performance during the 2008 financial crisis. During this difficult period, global SMID exhibited better risk control for unhedged Australian investors than both Australian large cap and Australian small cap equities (see Figure 22). This relative defensiveness comes from the tendency of the Australian dollar to depreciate relative to other developed world currencies in periods of economic stress, providing a buffer to unhedged AUD returns."