Investing in assets denominated in any currency other than ones base currency gives rise to foreign currency risk. Over a full currency cycle, holding developed market foreign currencies is not expected to deliver return, as these currencies are expected to mean revert. However, the impact in any one period can be significant. For over 30 years, we have been working with clients to help effectively and efficiently manage and implement their currency risk objectives.
Bespoke Passive Hedging
Just as every investor’s objectives and investment portfolios differ, so too should hedging programs be designed to effectively address any associated currency risk. At Record, no two hedging programs are designed or treated alike; each aspect of a hedging program is carefully considered with a client’s unique requirements in mind. From tailoring the program design to delivering customised client reporting, we adapt the offering to suit your needs.
Whilst a passive currency hedging program is a risk mitigation strategy (and therefore not intended to deliver ‘returns’), there are, nevertheless, several opportunities to add value and minimise implementation costs of a hedging program, many of which are included and incorporated within the design and implementation of our Core Passive Hedging service. Additionally, we offer an array of innovative Enhanced Hedging services intended to further improve hedging outcomes and which may be suitable to certain clients from time to time.
In contrast to our Bespoke Passive Hedging, which targets a fixed portion of currency risk, our active hedging strategies involve variable hedge ratios and target an asymmetric risk/return profile. As a specialist currency manager, we have formal investment processes for our active hedging mandates, and operate largely systematic techniques designed to exploit price patterns which we have identified in the currency markets.
Our two active hedging strategies, Dynamic Hedging and Signal Hedging, avoid tactical ”calls” on currency movements. Instead, both function by varying the hedge ratio within a predefined range (typically 0% to 100%), in response to certain inputs. These approaches are hedging strategies and therefore only take currency positions in one direction (long base currency, against foreign exposure currencies), and aim to create an asymmetric hedging profile in order to generate excess return over a full currency cycle.
Core Passive Hedging
Our core passive hedging service is intended to remove or reduce exposure to unrewarded risk from an investment portfolio. The systematic process is designed to reduce currency volatility (rather than generate a return) as well as offer opportunities to minimise costs, and our implementation is focused on maximising operational efficiencies.
Enhanced Hedging Services
In addition to the Core Passive Hedging service, some clients may benefit from our additional services which seek to further enhance hedging outcomes.
Dynamic Hedging aims to generate value through the timely closure of lossmaking positions so negative cash flows are reduced, while maintaining profitable hedges. The process exploits the trending characteristics of many currency pairs and has been successfully implemented for our clients for over 30 years.
Signal Hedging targets a greater exposure to profitable hedges, seeking to reduce portfolio risk through the combination of three well understood price behaviours within the currency markets; interest rates, value and momentum.