Passive Currency Management
Key Benefit: Seek to manage your currency risk
Any portfolio investing in overseas assets is implicitly absorbing a significant level of currency risk which can impact the returns. As the manager of this international portfolio you have two choices with regard to managing this currency risk:
1. "Do nothing": Leave currency exposures unmanaged (unhedged) and take the risk and return of currencies as given. Unfortunately, this solution will add unrewarded risk to your portfolio. While the returns on a basket of unmanaged international currencies wash out close to zero over longer periods of time (15 years plus), your portfolio will continue to suffer from currencies (standard deviation) over that period.
2. Implement a passive hedge: Choose to manage this unrewarded risk through the implementation of a strategic, passive hedge of your international currency exposures back to your base currency. This should dramatically reduce currency risk in your international portfolio and may also lower the volatility of your overall portfolio.
Passive Currency Management with JPMorgan Asset Management
- Since 1989, our Currency Group has worked with plan sponsors to tailor passive hedging programs to our client's specific investment allocations and requirements.
- We provide the experience and modelling expertise to help determine the optimal "hedge ratio" for your plan.
- We implement the passive hedge in a segregated portfolio using your plan's actual currency exposures as the basis for the hedge.
- You have complete control over the structure of the portfolio as we tailor the portfolio to suit your needs and/or restrictions. The hedge will reflect the currency exposure of your assets.
- We provide a dedicated, execution-only currency trading desk whose remit is to achieve cost-effective execution of trades. We source competitive bids/offers from multiple counterparties in the currency market.
- Efficient execution minimises your transaction costs.
- We implement positions using currency forward contracts.
- Currency forwards are flexible (i.e. the size of the contract and the date of settlement are negotiable), liquid, and do not require funding up-front (cash flows occur only on the settlement date of the contract).
- We provide detailed currency performance attribution as well as access to our industry leading proprietary currency research.
- The impact of currencies in your portfolio is transparent. You are kept up to date of the latest trends and issues in currency markets which may impact your currency exposure
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The managers seek to achieve the stated objectives. There can be no guarantee the objectives will be met.