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


,Q RWKHU ZRUGV MXVW EHFDXVH ZH FDQ·W \HW LGHQWLI\ WKH XQGHUO\LQJ UHWXUQ VRXUFH EHKLQG D UHWXUQ WR D ´%HWDµ GRHVn’t mean it doesn’t have one…


)XQQ\ 6WRU\ :H PLJKW KDYH PDGH D WLQ\ ´HUURUµ LQ WKH FKDUW HDUOLHU 7KH Wext might have leG \RX WR EHOLHYH ZH ZHUH VKRZLQJ WKH SHUIRUPDQFH RI D &DUU\ ,QGH[ 7XUQV RXW ZH ZHUHQ·W ,W ZDV LQ IDFW WKH 6 3 7RWDO 5HWXUQ LQGH[ +HUH·V WKH &DUU\ ,QGH[ FKDUW ZLWK WKH VDPH 6 3 7RWDO 5HWXUQ LQGH[ OLQH RYHUODLG


Hard to tell the difference, right?


:H·G FKRVHQ D SDUWLFXODU FXUUHQF\ ´6W\OHµ WKDW ZH knew, in aGYDQFH ORRNHG UDWKHU D ELW OLNH D QRQ FXUUHQF\ SURJUDP $QG &DUU\ VKRXOG IXQGDPHQWDOO\ KDYH WKDW UHODWLRQVKLS IRU D VLPSOH UHDVRQ


%\ JRLQJ ORQJ WKH KLJK \LHOG DQG VKRUW WKH ORZ \LHOG 36 Currency Investor | Autumn 2011 'R ZH FDUH LI WKHUH LV DUH


); %HWD V " 6LQFH ZH GRQ·W KDYH D SUREOHP LQYHVWLQJ LQ 86 (TXLWLHV HYHQ WKRXJK WKH\ PD\ PD\ QRW EH D WUXH %HWD ZH·G VD\ ZH VKRXOGQ·W UHDOO\ FDUH LI &XUUHQFLHV RU &XUUHQF\ 6W\OHV DUH D WUXH %HWD RU $VVHW &ODVV HLWKHU


“It is the


underlying idea (i.e. the Beta) that


is the source of the returns, not the particular assets used to access that Beta. So, as long as you believe there are Betas in the


World somewhere, you also have to


believe there are FX Betas!”


\RX·UH EX\LQJ WKH ULVN\ DVVHW ZKLFK WKHUHIRUH KDV D KLJKHU \LHOG DQG VHOOLQJ WKH VDIH DVVHW ZKLFK WKHUHIRUH KDV D ORZHU \LHOG %X\LQJ WKH 6 3


DVVHW DQG \RX·UH ´VHOOLQJ FDVKµ WR IXQG WKH WUDGH VR \RX·UH UHSOLFDWLQJ WKH VDPH ´LGHDµ EXW ZLWK D GLIIHUHQW VHW RI DVVHWV


$QG WKDW XOWLPDWHO\ LV WKH SRLQW ,W LV WKH XQGHUO\LQJ LGHD L H WKH %HWD WKDW LV WKH source of the returns, not the particular DVVHWV XVHG WR DFFHVV WKDW %HWD 6R DV ORQJ DV \RX EHOLHYH WKHUH DUH %HWDV LQ WKH :RUOG VRPHZKHUH \RX DOVR KDYH WR EHOLHYH WKHUH DUH ); %HWDV


LV EX\LQJ D ULVN\


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