Currency moves beyond the asset class

The latest NAB Superannuation FX Survey has confirmed a key change in approach to currency by superannuation funds.

An important change has taken place in the way many superannuation funds approach currency strategy – one based on seeing it in terms of the broader investment objectives rather than as an asset class. 

This has emerged as one of the key findings of the 2013 NAB Superannuation FX survey, and one noted by NAB currency specialist Danica Hampton. 

Hampton said this was evidenced by the fact that 50 per cent of funds are now making their currency strategy at the fund level – a statistic that was well up from the 41 per cent which had been witnessed in the 2011 survey results and “hugely higher” than the 22 per cent seen in the 2009 survey. 

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“This reveals that superfunds’ views on how to think about currency are evolving,” Hampton said.

“I think it’s showing us that people are looking at currency as a risk management tool. 

“They’re trying to pick their currency to mitigate risk, or trying to pick how much foreign exchange exposure is optimal, in order to maximise their risk-adjusted returns – and personally, I think this has had quite an encouraging effect,” she said. 

Hampton said she believed it showed that superannuation trustees better understood the role that currency played in their broader portfolios. 

“And I guess 50 per cent of the funds are looking at currency at the fund level. It’s really interesting when you go through and actually ask them how much foreign exchange exposure they’ve got,” she said. 

Hampton said the 2013 survey had revealed that 18.2 per cent of respondents had indicated they had their portfolios exposed to foreign exchange – up from 17 per cent in the 2011 survey. 

“Currency hedging is being viewed as a risk management tool, where the level of foreign exchange exposure is picked to maximise the risk-adjusted returns of the overall portfolio. Personally, I think this is quite an encouraging step in the right direction.

“But also the currency’s a whole lot higher than it was, or it had been very high,” Hampton said. 

“The perceived risk that the currency would fall meant that people were happy having a higher proportion of foreign exchange exposure,” Hampton said.