Currency for Return

We believe there are distinct sources of risk in currency markets to which investors can choose to allocate capital in the rational expectation of a long-term return.  These 'currency risk premia' are analogous to, although quite distinct from, the more familiar equity risk premium. We manage $3.2bn of currency for return (as at 30 September 2017).

The two currency risk premia that we have the longest track record of exploiting are the Forward Rate Bias (FRB), also widely known as the carry trade, and the expected appreciation of Emerging Market currencies as their markets converge with developed markets. In both cases we can explain the risk premium as a rational payment to investors who are willing to bear the risk of undertaking the economic function involved.

As well as these risk premia, currency markets show repeated patterns of behaviour which can also be systematically exploited. Two well-known patterns are Momentum, or the observation that tomorrow's price movement in most currency pairs is likely to be in the same direction as today's, and Value, or the observation that over time developed market currencies typically swing around a long-term 'fair value' level. Both of these patterns are familiar to Record, and both can be exploited in the expectation of return.

Record offers segregated mandates exploiting each of these, as well as combining certain of them in multi-strategy products. We also offer pooled funds principally exploiting the FRB in both passive index-tracking and active forms and Emerging Market currency appreciation, as well as more tactical opportunities.

Client Focus on Currency for Return see opposite to view more

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