(August-2002) MSCI launches hedge fund indices
Super funds adopting currency overlay strategies will not only avoid the "double-whammy" of declining international equity prices and an appreciating domestic currency, but are likely to add value too, according to president of FX Concepts Asia Pacific Robin Golding.
Golding says currency risk itself can be managed by simple hedging, but sophisticated forms of currency management such as cross-hedging — allowing managers to move into other currencies within the MSCI, and cross-hedging of currencies outside the MSCI into high-yielding currencies, can add value. Managers can also add value through currency options.
"This kind of active currency management allows funds to take advantage of, not only the manager’s ability to pick currencies that will perform stronger, but also those that will yield higher due to higher interest rates," he says.
After a long period of boosting fund returns, currency has had a negative influence on super fund returns in the past year.
"The double-whammy of falling international equity prices and a weakening US dollar have come at a time when funds have been increasing their exposure to overseas shares, most have increased to 20 per cent, with many having between a 20 to 30 per cent exposure to international equities."
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