For US investors, the management of currency risk in their portfolios has historically been an afterthought for a variety of reasons and assumptions, chief among them: zero expected return, portfolio diversification, and low materiality in the portfolio. We will touch upon each of these views, discussing their validity, evolution, and relevancy within the current market environment.
Historically, developed market currencies have not added or detracted meaningful return in multi-decade time horizons. Since the introduction of the Euro in 1999, EAFE currencies have gone full cycle, crossing the 0% return line again in early 2022 (Figure 1).
However, the impact over shorter time horizons is relevant as both plans and managers are often judged over periods as short as one to five years. Even with longer time horizons of ten years or more, volatile currency swings up to 50% have occurred, episodically adding or detracting significant value to the total equity portfolio.
Customized solutions to manage unrewarded currency risk in international portfolios.
Strategies that aim to profit from short and medium-term moves in the currency market.
Trading solution for asset managers and owners with focus on reducing transaction costs, improving transparency and enhancing efficiency.
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