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.
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.