So to create a hedged share class, you take an existing international fund, the one that's already working, and introduce a separate class with a currency hedge between the native fund and the new class. So, for example, take a US equity fund denominated in US dollars. The share class might be a Canadian-hedged version, removing all currency risk between the native US dollar fund and the Canadian investor. So it's the same strategy, it's the same holdings, but with a currency hedge layered on top.
Now you've got a “new product” without building something entirely from scratch. So to illustrate this further, let's imagine the previous scenario where a Canadian investor buys an unhedged US equity fund class denominated in US dollars. They're bullish on American companies, but this Canadian investor actually has two exposures to consider. First is the performance of those US stocks. And the second is the movement of the Canadian dollar against the US dollar. Now, when the Canadian dollar weakens, that investor’s returns look pretty good. Their US denominated investment is worth more in Canadian dollar terms. But flip it the other way, when the loonie strengthens against the US dollar, those same holdings are worth less in Canadian dollar terms. So your investor could have performance that's up in US dollar terms, but flat or even negative when converted back to Canadian. So you picked the right investment. But due to factors outside of your control, it didn't materialize in terms of end-investor performance.
Share class hedging strips away all of that unpredictable macroeconomic risk. You're essentially locking in the exchange rate between the native US dollar denominated fund and the Canadian hedged share class. So currency movements don't come into play. The result is that your investor gets the pure performance of the investment thesis, the security selection - without currency risk.