FX FX MANAGERS
is not designed to accumulate returns
from unique situations,
but to consistently exploit trends of 2-4 months to generate profits over time.
JW
Do you use Emerging Markets currencies? And do you think individual
traders should use
them, considering they don’t have to worry so much about liquidity issues?
UL
We do not employ emerging market currencies in our alpha strateg y, but do hedge them actively for clients with investments in those markets to the extent that there are liquid instruments that can be used. As to the alpha strategy we achieve our return and volatility objectives without using emerging market currencies and exposing investors to their particular risks – illiquidity at times, intervention, trading halts, “a run for the door” by investors, etc.
JW
When developing a strategy do you give a higher priority to building entry signals, exit signals or money management rules?
UL
Our current research is focused on designing integrated programs for investors that need to have their exposures actively hedged, blending active hedging, passive
54 FX TRADER MAGAZINE July - September 2011
par ticipation in gains, while reducing the risk of negative cash flows stemming from the hedging process .
JW
Do you think that every strateg y loses its accuracy sooner or later, or do you believe in long lasting market rules? Have you ever found a strateg y, which became profitable again after a long negative phase ?
hedging and currency alpha in various propor tions, and by currency, as the longer-term cycles of 3-5 years unfold in currencies to provide protection against losses,
UL
Clearly there are strategies that are period-dependent, such as carry. However, we have found that price-changes in currencies and other markets have a roughly bell-shaped distribution that has persisted for long times (over a century in equities). As a result, mean-reversion is a persistent phenomenon that keeps repeating and makes trend-following strategies time-less and likely to continue to be successful in the future, but with losses from time to time.
JW Do you use any form of
optimization? If so, how do you make sure it doesn’t create curve fitting and confirms robustness of the model?
UL
We do not use optimization in the traditional sense that we use correlations or similar methods. However, the sizes of our positions are determined by the number of buy and sell signals we have for a currency and its cross- rates. A currency with several buy signals is inherently in a stronger trend and hence a larger position is warranted. A change in one of those signals to a neutral or a sell would reduce the size of the position even if the trend has not yet reversed.
JW Do you favor any particular time
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