BNY Mellon Annual Currency Survey year end 2007 now available
Currency Overlay Management– Excess Return Analysis
Where there is currency exposure present in a portfolio there is currency
risk. If this currency risk is not tactically managed, there is an element
of the portfolio containing risk without reward.
The role of active currency management strategy has become increasingly
important with market globalisation, and also with the search for additional
sources of alpha.
Currency Overlay addresses this issue and has been prominent in the
investment market since 1983. A study by BNY Mellon showed that on average
currency overlay managers added an average of 0.67% excess return with a
2.01% average tracking error. The period of analysis relates to 229 months.
We produce an annual survey of the Currency Markets. This is now
available to you. Click here to register your interest.
The survey was originally carried out by the Russell Investment Group
back in 2000, and over the last few years we have updated and considerably
expanded the analysis; the breadth of our coverage has reached over 30
currency managers and includes historical data going back to 1988. Many
managers find the survey an invaluable tool in this increasingly competitive
and specialist area.
This year, our eighty five pages survey has been separated into
the following areas:
- Distribution of Accounts by Base Currency and Hedged Ratio
- Historical Performance
Mean Analysis of Excess Returns
Composite Analysis of Total Returns (Notional
Benchmarks)
Universe Analysis
- Currency Alpha – can currency be defined as an asset Class
SEB/Mellon FX Index
- Conclusion
The Study seeks to respond to the following questions:
- Did accounts in aggregate experience positive results? If so, were
these results dependent on the base currency?
- What was the variance for accounts with different base currencies and
hedge ratios?
- Did the typical manager add value or are the results skewed by a few
successful managers?
- Can we look at returns on a risk-adjusted basis?
- Are different currencies correlated to each other?
- Are we capturing Alpha?
- Are we taking risk into account? How much risk are we taking? How do we
measure risk?
- How has the median Manager performed?
- How are the accounts and managers distributed?
- Are we differentiating between upside and downside risk?
The survey is very highly regarded by the industry and referenced a great
deal by consultants, and pension funds and the press.