INVESTOR PERSPECTIVES


'HÀQLQJ ); %HWD ZKHQ WUHDWLQJ FXUUHQFLHV DV DQ $VVHW &ODVV


$UH &XUUHQFLHV DQ ´$VVHW &ODVVµ" :H FRXOG VSHQG SDJHV XSRQ SDJHV PDNLQJ WKH FDVH RU IDLOLQJ WR GR VR WKDW FXUUHQFLHV UHSUHVHQW DQ ´$VVHW &ODVVµ EXW LQ WKH HQG ZH FDQ VLPSOLI\ WKH DUJXPHQW WR DQVZHULQJ WKH TXHVWLRQ ´'R \RX FDUH DERXW WKH LPSDFW RI FXUUHQF\ UHWXUQV RQ \RXU SRUWIROLR"µ ,I VR WKHQ LW GRHV UHSUHVHQW D ´6RXUFH RI 5HWXUQµ DQG VR ZH·OO WDNH WKH WUHPHQGRXV VKRUW FXW WKDW ZKHQHYHU \RX VHH ´$VVHW &ODVVµ LQ WKLV DUWLFOH UHDG WKDW DV ´6RXUFH RI 5HWXUQµ


G


iven that Currencies are, therefore, an “Asset &ODVVµ FDQ ZH GHÀQH WKH %HWD V EHKLQG WKH return to that “Asset Class”1


" %HIRUH ZH GR


that, though, we do have to come up with a working GHÀQLWLRQ RI ´%HWDµ


:KDW ,V %HWD" An interpretation of Markowitz provides one useful GHÀQLWLRQ RXWVLGH RI 6KDUSH /LQWHU &$30 ZKLFK FRXOG EH GHVFULEHG DV FUHDWLQJ WKLV VDPH GHÀQLWLRQ %HWD UHSUHVHQWV WKH UHWXUQ \RX EHDU IRU WDNLQJ RQ QRQ GLYHUVLÀDEOH ULVN


1RWH WKDW LW·V QRW ´WKH PDUNHWµ RU ´DQ LQGH[µ ,W·V ´QRQ GLYHUVLÀDEOH ULVNµ 6R EHIRUH ZH JHW WRR PXFK further into the discussion:


$UH 86 (TXLWLHV D %HWD" 2


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DVVHW ZLWKRXW UHPRYLQJ UHWXUQ 7KH FRQFOXVLRQ ZH GUDZ IURP WKDW REVHUYDWLRQ LV WKDW 86 (TXLWLHV DUH D ´K\EULG EHWDµ LQ WKDW WKH UHWXUQ RI WKH PDUNHW DV D ZKROH LV FRPSRVHG RI DW OHDVW WZR HQWLUHO\ GLVWLQFW EHWDV RQH FDOOHG ´(FRQRPLF *URZWKµ DQG DQRWKHU ´5LVN\ $VVHWµ


7KH SUREOHP ZH IDFH LQ ORRNLQJ DW WKH UHWXUQ RI 86 HTXLWLHV LV WKDW ZH FDQ RQO\ VHH the Asset Class return and not WKH UHWXUQV GXH WR WKH %HWDV LQVLGH :H FDQ KRZHYHU GR VRPH ZRUN WR VHH WKH HYLGHQFH RI WKRVH %HWDV WKH VLPSOHVW ZD\ ZH·YH GLVFRYHUHG LV WR DQVZHU WKH TXHVWLRQ


34 Currency Investor | Autumn 2011


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