| Currency overlay and absolute return strategy: a world apart |
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| 16/05/2004 | |
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Currency overlay can not only be used to hedge your exposure against the vagaries of the exchange rate, but also as a yield-maximising tool, say two currency experts, Renaud Mattis, Senior portfolio manager at Overlay Asset Management and Paul Skinner, Head of Fixed Income Business Development at Gartmore. While a currency overlay seeks to find a balanced risk/return, the investor will use it as an optimising tool for its entire portfolio, explains Renaud Mattis. "A currency overlay typically seeks reconciling two objectives: firstly, risk-reduction (or risk-control against unfavorable currency movements) and, secondly, marginal return enhancement, both at the overall portfolio level". Paul Skinner agrees that "Currency overlay is the management of the foreign exchange risk inherent in a portfolio of foreign assets." On the other hand, an absolute return strategy goes for full return enhancement. "An absolute return strategy takes the techniques developed in currency overlay and removes some of the constraints (such as the equity asset allocation) to enable the currency manager to optimise his opportunity set and produce the most efficient absolute return for the client", answers Paul Skinner when asked to compare a currency overlay and a absole return currency strategy. It is all about opportunity, says Renaud Mattis, according to whom "a currency alpha strategy obviously seeks to maximize the returns sourced from active currency management, i.e. being more opportunistic than a typical currency overlay. " This e-mail address is being protected from spam bots, you need JavaScript enabled to view it |
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