Our Philosophy
It is our philosophy that the volatile, trending and unpredictable nature of currencies requires specialist management. This philosophy is grounded in our belief that:
Currencies are Volatile and Significant: Nearly 50% of the MSCI EAFE Index volatility measured over the past 5 years is attributable to currencies. MSCI EAFE, the Europe, Australia and Far East Index, is the standard benchmark for U.S. investment abroad.
Currencies Demonstrate Trends: From June 1995 to June 2001, the currency component of the EAFE Index fell by 40%. From June 2001 to December 2004, however, the currency component has gained over 46% demonstrating its strong trending nature.
Currencies are Unpredictable: Alan Greenspan was quoted as saying "Forecasting of exchange rates has a success rate no better than that of forecasting a coin toss." There are few illustrations that better capture the difficulty of forecasting exchange rates than this comment by the former Federal Reserve Chairman.
These currency characteristics can be approached in three distinct ways:
- Risk to Mitigate: If the client's objective is to reduce or eliminate currency exposure, a passive hedging program is appropriate.
- Imbedded Opportunity: Management of a client's existing currency exposures generates alpha by participating in currency gains and limiting currency losses.
- External Opportunity: Clients can benefit from alpha creation by investing in currencies as a discrete asset class, whether or not a client has international exposures.
Our investment products take each of these important points into account.
Any reference to historical performance herein, does not guarantee future results.
