Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

7139

Russell unveils new approach to managing currency exposure

RELATED TOPICS​

Over the last 20 years institutional investors have steadily increased their exposure to international assets, and hence their currency exposure. Recent research from Russell Investments proposes a new way to look at the portfolio problem posed by currency – a strategy called Conscious Currency designed for investors who believe that both the amount and nature of currency exposure matters.

“For many investors, the currency exposure stemming from international equity and fixed income investments may be the single largest unmanaged position in their portfolio. It’s effectively a significant currency portfolio – but one without a thought-through investment policy,” says Ian Toner, head of currency implementation at Russell Investments.

In following the Conscious Currency approach, investors are encouraged to think about currency exposure as they would other key portfolio exposures. This involves a staged process in which investors choose an appropriate benchmark to describe the currency markets as a whole, model the international asset markets on a hedged basis (while including as a separate potential allocation the chosen currency market benchmark), and then finally, determine a deliberate or “conscious” allocation policy, including possible exposure to the currency markets. That exposure to currency can be achieved either through benchmark-replication portfolios, or through active strategies designed to produce return from additional alpha.

“The adoption of a Conscious Currency approach could be an attractive option for a broad range of global investors who may be concerned about their exposure to currency, whether or not they believe in active currency management,” says Toner. “Most importantly, this approach does not involve exposing the portfolio to any new asset class or exposure set. Instead, Conscious Currency seeks to drive better portfolio efficiency and risk adjusted return by describing currency exposure more accurately and aligning the portfolio more directly with the described neutral currency position.”

This latest research builds on Russell’s 20-year history of research into currency exposure management and complements Russell’s expertise in agency foreign exchange (FX), an innovative Russell investment solution designed to cut foreign currency transaction costs by seeking out the best points of execution for currency transactions. In 2010, Russell issued research which found that the costs of foreign exchange transactions are higher than either investors or managers should expect in practice. It identified four main features of the FX market which could potentially lead to unnecessarily high costs as well as three key areas that investors should focus on when attempting to understand the costs associated with FX execution.

Latest News

Data provider Preqin has published its Deal Flow Monitor: Q1 2024 report, examining trends in..
Global index revenues increased 9.3 per cent in 2023, totalling a record USD5.8 billion, according..
Octopus Investments (Octopus) has announced it has launched a Natural Capital Strategy...

Related Articles

Trends
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100 million deals announced this month alone...
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100..
Different flavours
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led, multi-boutique global asset manager with over USD20 billion under management, recently undertook a survey with 204 UK investment professionals, seeking insights into their perceptions and attitudes towards boutique asset managers...
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led,..
UK map
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be worth billions of pounds in the coming years...
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be..
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a possible buyout of EY’s Italian consulting branch...
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by