LEADER
hedge ratio from the target (the second source of implementation slippagH 8VLQJ KHGJH UDWLR ÀOWHUV such as pOXV RU PLQXV WZR SHUFHQW DURXQG D percent hedge, is a common tool for balancing the FRVW RI WUDGLQJ ZLWK WKH WUDFNLQJ HUURU UHVXOWLQJ IURP QRW WUDGLQJ 7KH WKLUG VRXUFH RI LPSOHPHQWDWLRQ VOLSSDJH LV ZKDW LV UHIHUUHG WR DV ´GDWD ODJµ +HGJLQJ is a constant reaction to valuation changes that have DOUHDG\ RFFXUUHG WKH VSHHG ZLWK ZKLFK D KHGJLQJ decision can be implemented can have a meaningful LPSDFW RQ KHGJH SUHFLVLRQ
Finally, portfolio related slippage is attributed SULPDULO\ WR WKH LPSDFW WKDW IRUZDUG FRQWUDFWV KDYH RQ SRUWIROLR SHUIRUPDQFH 6SHFLÀFDOO\ FXUUHQF\ IRUZDUGV GHIHU JDLQV DQG ORVVHV XQWLO WKH PDWXULW\ RI WKH FRQWUDFW 7KHVH JDLQV DQG ORVVHV FUHDWH D FDVK position in the portfolio that either drags or levers SHUIRUPDQFH )RU H[DPSOH LI WKH KHGJHG FXUUHQF\ GHSUHFLDWHV E\ ÀYH SHUFHQW WKH ´XQUHDOL]HGµ JDLQ RI WKH IRUZDUG FRQWUDFW ZLOO DFFUXH LQ WKH SRUWIROLR DV XQ LQYHVWHG FDVK JURZLQJ DW D GLIIHUHQW UDWH RI UHWXUQ WKDQ WKH XQGHUO\LQJ LQYHVWHG DVVHWV 0DQ\ PDQDJHUV XVH VKRUWHU GDWHG IRUZDUG FRQWUDFWV WR HQVXUH PRUH regular settlement of the unrealized gains and losses
ZLWK WKH JRDO RI EULQJLQJ WKH SRUWIROLR DV FORVH WR IXOO\ inveVWHG DV SRVVLEOH
:KHWKHU WKH SROLF\ FDOOV IRU SHUFHQW KHGJHG RU
optimally hedged, benchmarked into local assets or to a published index, these performance elements provide insights to structuring the appropriate LPSOHPHQWDWLRQ SURFHVV 'RLQJ VR HQVXUHV FRVW UHGXFWLRQ RSWLPDO SHUIRUPDQFH DQG WUDQVSDUHQF\ 8QGHUVWDQGLQJ WKHVH FRPSRQHQWV DOORZV PDQDJHUV WR continuously evaluate the program to ensure that all SDUDPHWHUV DUH VSHFLÀHG DFFRUGLQJO\ ZLWK WKH DELOLW\ to make eGXFDWHG DGMXVWPHQWV WKURXJK WLPH
Conclusion
Implementation and transparency have moved to the forefront of the currency management industry as investors measure performance in basis points, rather WKDQ SHUFHQWDJH SRLQWV 6LJQLÀFDQW HIIRUW LV EHLQJ made to identify the appropriate hedging strategy, and equal importance should be placed on the LPSOHPHQWDWLRQ RI WKDW VWUDWHJ\ 6XFFHVVIXO FXUUHQF\ PDQDJHUV SDUWQHU ZLWK LQYHVWRUV DQG SURYLGH D FRPSOHWH HQG WR HQG VROXWLRQ WKDW GHPRQVWUDWHV WKHLU commitment to delivering full transparency and JXLGDQFH ZKHUH OLWWOH OLJKW KDV EHHQ SUHYLRXVO\ VKHG
The views expressed in this material are the views of Jay Moore through the period ended September 1, 2011 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Autumn 2011 | Currency Investor 15
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