Archive News (2013)


04/12/2013 Bloomberg webinar: Hedging Emerging Market currencies

Javier Corominas, Head of Economic Research and FX Strategy at Record Currency Management, recently featured in a Bloomberg webinar on currency hedging in Emerging Markets. There were 267 live participants and the group discussed what the optimal ways to hedge Emerging Market currency exposure were. 

To catch a replay of this discussion, please click here

03/12/2013 Institutional Investor: Beta currency strategies offer diversification benefits

A 2012 paper called "A New Look at Currency Investing" by Richard Levich and Momtchil Pojarliev made the case for using forex to diversify portfolios and lower risk of equity investing. The paper suggests that there are three diverse currency strategies, which each offer a risk premium: carry trade, momentum and value investments.

James Wood-Collins, Chief Executive Officer of Record Currency Management, says that around 5 percent of the $37 billion in Assets under Management are in managed accounts using one or more of the three strategies plus a fourth strategy based on emerging market currencies. He notes that using Record's blended strategy over the past 25 years would have produced annual returns of 2.5 percent with 3.5 percent volatility.

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02/12/2013 FX week: Time for systematic strategies?

Systematic traders have suffered in the past few years from significant and frequent interventions by central banks which have reduced the profitability of both trend-following and carry and made the market more prone to short, sharp moves that systematic models find difficult to follow. James Wood-Collins, Chief Executive Officer of Record Currency Management, argues that the great danger of systematic management is that ultimately the models cannot predict how things will behave in the future. 

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20/11/2013 Evening Standard: Time to embrace hedging

The gradual return to normality in financial markets looks like good news for currency investors. Record Currency Management has a long track record of investing in the carry trade, where money is borrowed from a country with a balance of payments surplus, and invested in a country with a balance of payments deficit.  Countries with balance of payments deficits typically have higher real interest rates as a result of a risk premium associated with current account deficits.

Neil Record, Chairman of Record Currency Management, believes that as the market distortions caused by Central Bank interventions recede, the performance of currency investment strategies will improve.

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01/11/2013 FX Week: Systematic strategies due a comeback

Despite the recent bankruptcy of FX Concepts, some currency managers believe systematic investment strategies could soon make a comeback. James Wood-Collins, chief executive of Record Currency Management, said that more divergent central bank policy should be accomodative of the carry trade. However, he added that central bank policy will remain uncertain in the upcoming months, which is why Record are not overweighting carry strategies in their multi-strategy yet. 

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01/11/2013 IPE: Keep your FX options open

The environment since 2008 makes the case for dynamic hedging. There are two key problems that investors wish to solve with currency hedging: first, the avoidance of large losses from foreign currency weakening (or domestic currency strengthening), which often happens over very short time horizons; and second, a limit to, or at least stability in, the cash-flow demands that results when the opposite happens - or when nothing much happens at all.

FX options may, on the surface, seem like a good solution. However, FX options expose clients to uncertain costs of rolling contracts to maintain a hedge and can prove inflexible should a client wish to change their hedge ratio. A trend-following strategy that uses currency-forwards to replicate options payoffs, increasing the hedge ratio once the base currency has entered an appreciating tend, and decreasing back towards the hedge ratio benchmark once it has entered a depreciating trend, could perform better.

James Wood-Collins, CEO of Record Currency Management, argues that most currency pairs exhibit momentum which means that a trend-following strategy should add value over longer time horizons. 

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28/10/2013 P&I: Diversity crucial for FX managers

A major currency investor, FX Concepts, lost nearly all of its assets under management over the past six years. Since the financial crisis of 2008, currency managers have struggled in an environment in which multiple countries' central banks have dampened currency volatility through a variety of tools, such as quantitative easing. The length of the challenging environment is putting pressure on all currency managers, pushing them to diversify their businesses by adding strategies within the asset class and expanding beyond it.

Record Currency Management introduced its Multi-Strategy Currency Portfolio, a smart beta mandate, in July 2012. It is made up of four strands, which had previously been offered as stand-alone strategies: the forward rate bias, also known as the carry trade; momentum; value and emerging market currencies.

James Wood-Collins, chief executive officer of Record, argues that combining the four strategies provided investors with a smoother diversified return stream.

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17/10/2013 Professional Pensions: Where will the US dollar go?

The US debt crisis has distracted investors from better economic news across the Atlantic. Global rebalancing and the shale gas revolution should both help the dollar to strengthen in the long run. James Wood-Collins, Record Currency Management chief executive, argues that the dollar has been could be on a potential turning point. 

There are, however, a number of factors which could prevent the value of the dollar rising at present. Javier Corominas, head of economic research & FX strategy at Record Currency Management believes that interest rates in the US are not high enough to encourage investors to buy dollars. The US current account deficit means that there is a net selling of dollars each year which also does not support the currency. Corominas sees brighter prospects for the dollar in the future, particularly if it becomes energy independent. 

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07/10/2013 Financial Times: Foreign exchange interest on the up?

Are institutional allocations to foreign exchange investment strategies increasing or decreasing? Investment managers who specialise in forex say they are seeing greater interest from pension funds and other investors. James Woods-Collins, CEO of Record Currency Management, argued that the FX allocation story was one of measured progress rather than dramatic growth. 

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01/10/2013 The Banker: Emerging market currencies hit by rate expectations

Expectations of rising US treasury yields have hit emerging market currencies hard but not all currencies are equally vulnerable. Since Ben Bernanke, US Federal Reserve chairman, signalled in May a potential tapering of the central bank's bond-buying programme, investors have withdrawn from emerging market bond and equity markets.

Javier Corominas, Record's Head of Economic Research and FX Strategy, obsereved that emerging markets looked to be in better shape compared with previous emerging market selloffs. 

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24/09/2013 Euromoney: Emerging market FX growth slower than expected

Emerging market (EM) currencies are expected to continue to expand their share of the $5.3 trillion-a-day global forex market despite the turmoil, with China's RMB leading the charge.

Javier Corominas, Record's Head of Economic Research and FX Strategy, expects the trend of growth in EM currencies in terms of volume to continue. He argued that a wider acceptance of of free-floating currency regimes could lead to substantial pick-up in EM FX volumes and convergence with their world GDP share. 

For the rest of this article, click here.

16/09/2013 FX Invest Conference

Javier Corominas, Head of Economic Research and FX Strategy, at Record is speaking on Currency as an inflation hedge this week at the the FX Invest West Coast conference in San Francisco.   

For more information, click here

05/09/2013 Reasons to be concerned about Euro currency risk

With the ongoing sovereign debt crisis in Europe, institutional investors should consider the Euro Currency Risk in the global equity market.  Aaron Cantrell, a Research Analyst at Record Currency Management, argues in the Texpers Pensions Observer that there are three reasons to be concerned about Euro exposure.

The first is the lack of fiscal consolidation and the continued divergence in productivity between the North and South in the Eurozone. This had made it increasingly difficult to see a solution to the debt crisis that does not involve a Euro break-up.  Second, the Euro has become very highly correlated with risky assets over the past three years. This means that the Euro acts to amplify the risk and volatility of an equity portfolio. Third, the nominal and real value of the US Dollar is at a historic low on a trade-weighted basis. A US Dollar reversion to fair value over the next few years, in line with typical currency cycles, would create losses in unhedged portfolios.

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02/09/2013 Treasury Today: Global volatility has spilt into the FX market

The volatility in the global economic environment has spilled over into the foreign exchange (FX) market, which is experiencing significant moves and liquidity problems. The FX world is very different from a decade ago and therefore so too are FX strategies.

James Wood-Collins, CEO of Record Currency Management, argued that while the FX environment has changed, the principal challenge facing corporates has not.

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27/08/2013 Wall Street Journal: Emerging Europe defies EM trend

Propelled by the euro zone's recovery, the emerging markets of Europe continue to rise above the storm that has hit other developing economies. Currencies such as Poland's zloty and the Bulgarian lev are up against the dollar since May, while India's rupee and the Turkish lira have slid to record lows:

Javier Corominas, head of economic research and currency strategy at Record, observed that Central and Eastern Europe have become relative safe havens within emerging markets. 

For the rest of this article, click here.



10/08/2013 The Economist: The carry trade

Given the importance of foreign exchange markets, it is important to understand what would entice investors to favour one currency over another. A key factor in this evaluation, and one that has been so for the past twenty years, is the "carry trade". This consists of a trader borrowing in a country with low interest rates, and investing the proceeds in a country with higher rates - hence pocketing the difference.

Analysis conducted by Record Currency Management based on 33 years of data on the five big currencies, shows that the currency in the country with the higher interest rate, outperforms  the forward exchange rate more often than not. 

For the rest of this article, click here.



07/08/2013 The Economist: Mixed reaction

Mark Carney communicated his long-anticipated 'Forward guidance' statement, his first as the Governor of the Bank of England. In his statement, Carney confirmed that rates will remain low until unemployment falls to the 7% target threshold. Carney furher indicated that the policy was subject to change in the event that:  "it is more likely than not, that CPI inflation 18-24 months ahead will be 0.5 percentage points or more above the 2% target."

In light of his statement, just how accurate are the Bank's inflation forecasts? A paper written by Neil Record and Jonathan Scott, found that since 1998, eight outcomes were outside the range.

Article available at:

01/08/2013 Pensions Insight: Currency market bounces back

Following years of poor performance, currency markets appear rejuvenated, with volatility creeping back into the market. Subsequent re-evaluations of the pound and yen have further revived interest in the asset class.

Currency managers and consultants are additionally learning from their previous mistakes, with Record Currency Management's James Wood-Collins arguing that currency products are now more transparent.

One of the major attractions of the currency asset class is that it is a deep and liquid market, that allows institutional investors to invest in the most rapidly growing economies. 


01/04/2013 Portfolio Institutional: FX volatility comes to the fore

As currency movements have begun dominating headlines, particularly with regards to movements in Yen and Sterling against the US Dollar, Charlotte Moore of Portfolio Institutional discussed the renewed interest in currency. The article paid particular attention to the effect of central bank interventions, and the putative 'currency wars' which these entail, on investor confidence and the importance of currency risk management.  

James Wood-Collins, CEO of Record Currency Management, commented that the behaviour of currency markets from 2008 to 2011 had been muted by a number of unusual circumstances, including very narrow interest rate differentials between developed currencies. These unusual circumstances resulted in weak trending behaviour. Although volatility has begun to return to currency markets, James Wood-Collins noted that the changing behaviour of central banks, with increased intervention compared to histroic expectations, is changing the way currency markets behave. He also commented that central banks can only work for a limited period, but that these interventions cause pressures to build up in the currency market that could eventually cause markets to fracture.

01/04/2013 Financial Times: Rising interest rates stimulate currency markets

Following several years of currency markets suffering due to the loose monetary policies of central banks, the prospect of a switch from bonds to equities may help currency managers.

James Wood-Collins, CEO of Record Currency Management, commented that the currency tide appears to be flowing back in following a siginficant reduction in currency business in recent years. He further noted that currency markets now exhibit more fricitional movement than in the past.

For the rest of this article, click here.


01/04/2013 Financial Times: Custodians respond to greater demand for FX transparency

A similar approach to transaction cost analysis in the FX markets as that applied in the equity markets is expected to increase transparency and encourage greater competitivenes in pricing among custodians.   

The spread of transaction cost analysis, and the subsequent lawsuits launched by large pension funds against their custodians, was linked to the appointment of Record Currency Management to analyse FX transactions for Calpers.

James Wood-Collins, CEO of Record Currency Management, commented that the conclusions of Record's paper, 'FX Transaction Costs - Plugging the Leakage', remained relevant.

For the rest of this article, click here.


31/03/2013 Financial Times: Euro fundamentals still weak

For all the drama surrounding the Cyprus crisis, the effect on the Euro was relatively muted. The upcoming political issues, particularly the challenges facing Italy and the upcoming German elections, are seen as more likely to introduce heightened volatility.

James Wood-Collins, CEO of Record Currency Management, commented that there are strong downward pressures on all developed market currencies, as the search for growth continues. However, as not all developed market currencies can go down at the same time he focussed attention on challenges to the eurozone.

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28/02/2013 Euromoney: Online FX poised to overtake voice brokers

A number of drivers have increased institutional investor interest in FX transaction cost analysis (TCA) in recent years. Early motivation was provided by a number of high-profile lawsuits in which large US pension funds questioned their custodians' pricing of FX transactions. More recently, a gradual switch to electronic trading platforms has enabled FX TCA by pulling together market participants and liquidity into a limited number of venues, says Record CEO James Wood-Collins. In a low-return environment, investors are looking to save costs wherever they can, and a rojected growth in algorithmic FX trading among large institutional investors will support this growing trend towards accurate recording and analysis, as institutional investors come to realise that automated electronic trading can achieve similar pricing results to voice trading. 

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25/02/2013 FX Week: FX traders face up to regulatory guidelines

With US regulators closing in on a decision over final guidelines for mandated trading of OTC derivatives using swap execution facilities (or Sefs), some traders are worried about low liquidity in some instruments, particularly in the already low-volume market for non-deliverable forwards. Whilst some entities offering electronic trading of NDFs have seen liquidity pick up in recent months, Record CEO James Wood-Collins notes that liquidity in non-deliverable forwards is still limited, and it remains unclear as yet how much liquidity market-makers will provide in future, or how fast this liquidity will come online. He expects voice trading and electronic reporting of some trades for a while to come.

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18/02/2013 Pensions and Investments: Currency managers welcome market volatility

Both the market and business environments facing currency managers have been difficult for the past five years, with consistent positive returns hard to maintain and some currency managers closing up shop. Currency wars, with their attendant volatility, could change that pattern, if managers can latch onto and exploit market-driven themes, such as the weakening of the Yen. Record CEO James Wood-Collins noted a rise in inbound inquiries, both with respect to hedging and alpha-seeking strategies.

For the rest of this article, click here.


11/02/2013 FX Week: Currency managers disagree on net foreign assets analysis

Some managers argue that net foreign assets (NFA, which using the IMF's conventions is equivalent to the net lending/borrowing of an economy recorded in the financial account, or the sum of current and capital accounts) is an underused indicator in long-term currency analysis. This under-utilisation is perhaps more surprising given academic support for the relevance of NFA. Other managers argue that the indicator is slow-moving and has its effects drowned by other shorter-term factors, even if it may be useful for thinking about long-term drivers. Record's founder and Executive Chairman, Neil Record, argues that measurement presents a serious issue for NFA, with no consistent reporting or centralised position of foreign currency debt.

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11/02/2013 FX Week: Euro outlook remains unpredictable

Whilst ECB President Mario Draghi stated on 7 February that the bank wanted to see whether recent Euro strength would sustained, markets may well have decided that recent appreciation has reached its limit. Perhaps paradoxically, the abatement of break-up risk could lead to greater uncertainty, as analysis shifts back to focus on more traditional factors driving the Euro up or down. Record CIO Bob Noyen argues that even this may be too sanguine a view, given that the fundamental problems which caused a rift to gradually open in the Eurozone remain unresolved. Should they come to the fore once more, member states' solidarity will be tested, with unpredictable results.

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07/02/2013 Professional Pensions: UK pension funds face cash flow pressures

As the pound fell against the euro and the dollar in January, pension schemes were warned against making reactionary changes to their asset allocation as hedging strategies saw negative cash flows. Ideally, funds should aim to manage liquidity so as to be able to deal with cash flows without a need for tinkering with asset allocations. Record CEO James Wood-Collins provides insight into the cost-benefit analysis that funds go through when weighing risk reduction at a program level voer the long term against meeting shorter-term cash flow requirements.

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04/02/2013 The Trade Derivatives: FX Exposure

Following the clarification offered by the US Treasury on the impact of the Dodd-Frank regulations on the FX swaps and forwards market has come under renewed scrutiny. The Trade Derivatives discussed the impact of Dodd-Frank on investment managers and the level of preparedness across the industry for the upcoming changes.

James Wood-Collins, CEO of Record Currency Management, noted that the new regulations will have a significant operational impact and that there will be an economic drag on some buy-side firms, but that new regulations are unlikely to put firms off using instruments such as NDF. Although aditional procedures will be needed, these instruments will remain a valid tool for investment managers.

01/02/2013 Pensions World: The case for currency hedging

In this article Diana Ples from Record argues the case for currency hedging. She points out that hedging provides volatility reduction over the short to medium term, and that this is still valuable given that relatively few investors have sufficiently long time horizons to be indifferent to this volatility. She also highlights the fact that hedging can allow investors to retain equity portfolio diversification while eliminating currency risk, and that hedging has performed relatively well over the past 32 years from a Sterling perspective. Given the potential benefits of hedging, the multiple strategies for reducing risk and even adding value through currency programs are of considerable interest.

For the rest of this article, click here.


01/02/2013 Funds Europe: FX outsourcing

Recent lawsuits against custodians in the United States are just one sign of a broader realisation that third-party foreign exchange specialists can be a valuable part of the investment process. Whilst interest from investment managers themselves varies, James Wood-Collins points out both that few equity or debt managers would claim currency as a core competency, and that many are realising that large hedging programs can involve substantial sums. Add to this the suspicion (seemingly confirmed by the big US lawsuits) that banks do not always act in clients' best interests, and one can explain the increasing interest in specialist currency managers to oversee the currency investment process or be hired on an agency basis.

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28/01/2013 Financial News: Citigroup aims to reclaim FX top spot

Competition is underway - at least at some top foreign exchange banks - for first place in the Euromoney survey of foreign exchange banks. This year Citigroup, who were knocked from the top spot by Deutsche Bank in 2002, are going all-out to reclaim the crown. The bank is putting T-shirt-clad teams in competition with one another and running an internal campaign to encourage traders to call clients and ask them to complete the survey. Whilst the survey is big news for some banks, others do not believe its benefits justify hassling clients about it. Record CEO James Wood-Collins explains that, whilst the survey does provide useful information on volumes and market share, it does not affect where Record executes its trades.

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16/01/2013 Financial Times: Carry trade still has life

Recent comments by ministers in the new Japanese government indicate that Yen weakness may become a concern if import prices rise too much. Moreover, the recent depreciation of the Yen has brought it back to around its 2007 level, which could be bad news both for traders betting on further weakness and for the Yen carry trade. Record Chairman Neil Record argues that, although carry trade returns have been weak in recent years, the strategy is not dead, and should become more profitable as economic conditions normalise.

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10/01/2013 Wall Street Journal: Things improve for Romanian Leu

An improved outlook for the eurozone and gradually stabilizing political situation, the Romanian Leu has seen a short-term turnaround in its fortunes, driven by investors scouring emerging markets in search of yield opportunities. The election of Victor Ponta in December 2012 marked a significant turning point in the view of the markets, countering a sell-off in the Leu after the mid-2012 election which Mr Ponta lost to the incumbent Traian Basescu. Whilst over the longer-term an appreciating currency may become a concern, Record Head of Economic Research and FX Strategy Javier Corominas argues that, with rates being cut in neighbouring Poland and Hungary, Romania's high nominal rates and stable inflation could present an attractive opportunity in early 2013, as real interest rates move into positive territory.

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07/01/2013 Euromoney: FX volatility could return in 2013

After a year of declining volatility across major currencies, there are reasons to expect a renewal in volatility during 2013. Low interest rates, central bank interventions and a decline in hedging all dampened volatility in FX markets, leading to a self-reinforcing cycle whereby speculative demand for FX options was driven lower by already low volatilities. The potential for growth, a degree of normalisation in interest rates, and political uncertainties in key markets - from the US fiscal cliff to the fate of the Yen - could well make for a return of volatility, particularly if investors are losing faith in dollar-denominated assets. On the Yen in particular, Javier Corominas, Record's Head of Economic Research and FX Strategy, views the key question as whether we witness a sharp decline or steady depreciation. In either case, the current situations in major markets may give investors a reason to bet on volatility this year.

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