Pure Currency Alpha
Key Benefit: De-link excess returns (alpha) from underlying asset exposure
The benefits of active management (step 3) can be achieved without linking a portfolio to underlying currency exposure. The returns from an active currency program may be considered a pure source of alpha, as the program does not need to be funded (if currency forwards are used to implement positions in a segregated portfolio). Hence the program may be put into place in a notional portfolio, designed to produce a target return within a specified risk (tracking error) budget.
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The managers seek to achieve the stated objectives. There can be no guarantee the objectives will be met.