Currency Advisory Services
In our view, the investment case for active currency management is supported by four reasons that benefits today's investors.
1. Performance Gains.
Foreign exchange investments meet two basic needs. First, by investing in a currency strategy in addition to your existing portfolio, you can increase the yield of short- to medium-term positions. Second, currency positions that have arisen as a result of purchasing foreign stocks, for example, can be hedged using a currency based investment solution. In both cases, adding foreign exchange investments to your portfolio increases its diversification and may decrease risk, due to their low correlation with the stock markets.
2. Market Dynamics.
The Foreign Exchange market is a large, liquid, and unique global marketplace with a wide variety of participants. In fact, this is one of the most liquid financial markets in the world with average daily turnover of approximately $3 trillion. While the currency market is vast and diverse, it is also inefficient. In this context, profit-seeking investors and traders may be in a unique position to exploit inefficiencies in the market.
3. Cost efficient Investing.
Unlike the stock and commodities markets, which operate out of centralized exchanges, the FX market does not charge regulatory fees, exchange fees or data fees. Currency trading also does not generally involve commissions being charged on trades, at least as commissions are traditionally understood in other financial markets. Instead, liquidity providers typically charge clients through the dealing “spread”, a common form of transaction cost that is also charged to stock and commodity traders. The low cost of trading currencies means it offers an efficient way to express economic views.
4. Skills and Strategies.
Active currency strategies offer returns that are generated through manager skills, and not market beta. Currency managers use a variety of different methods and indicators when trading in the foreign exchange market. In general, currency managers can be broken down into two broad categories - Discretionary and Systematic. Discretionary managers employ fundamental analysis and subjective judgment in portfolio construction. Systematic managers rely on quantitative rules and systems in portfolio construction.