ROUNDTABLE
Many investors are looking beyond developed markets to take advantage of opportunities in both emerging and frontier markets. Do you think recent Currency Wars, where fast growing countries take radical steps to prevent appreciation of their currencies, will dampen investor appetite for portfolio exposure to some regions?
“The investor’s choice of currency policy may impact their choice of currency
manager depending on their objective.”
KS: The decision to get exposure to emerging and frontier markets is a strategic one and the risks associated with these economies is part of the education process that trustees should undergo before investing in these regions. Periods of turbulence may affect the tactical timing decision for any new investments in emerging markets but it is unlikely to dampen investor appetite in the longer term.
JOE BRACKEN
better in certain conditions but all will only be as good as the quality of the people responsible. In WKHRU\ D PRUH GLYHUVLÀHG VWUDWHJ\ VKRXOG GR EHWWHU WKDQ D OHVV GLYHUVLÀHG DSSURDFK EXW RQO\ LI DOO WKH components are equally good. So a narrower strategy implemented well might be better than a more GLYHUVLÀHG VWUDWHJ\ WKDW LV RQO\ DYHUDJH The use of more than one manager will allow LQYHVWRUV WR REWDLQ GLYHUVLÀFDWLRQ EHQHÀWV ZKLOH retaining the use of specialists. Our analysis has shown that active currency managers tend to have very low correlation with each other which means that it can be effective to use a number of managers as part of a multi-manager portfolio. The best solution for each investor will depend on the resources they have available (internal or external) to manage this process.
JB: The investment style has to match the client’s objectives and requirements. There is room in most portfolios for both approaches. A client may choose to manage part of the risk from a passive management and part through a specialist active manager or a combination of complementary managers. 'LYHUVLÀFDWLRQ LV YHU\ LPSRUWDQW DV LW DOORZV DQ improvement in the overall performance by reducing risk and improving returns.
DM: Investors shouldn’t be too worried about currency wars as they often just delay the inevitable. Usually, if the pressure is for a revaluation (upwards or downwards), then dampening those pressures means they build up so that the eventual move still happens, but with more force. But that’s why we want currency experts to manage the process for us. You ask if investors might be reluctant to have currency exposure to some regions. If they are unhappy about these exposures, investors can restrict their manager’s mandate or select a currency manager that specialises in a limited range of developed market currencies. Generally, we would advise imposing as few restrictions as possible. The PDQDJHU·V DSSURDFK ZLOO UHÁHFW WKH DUHDV ZKHUH LW LV strongest and we usually advocate exposure to the SURGXFW WKDW EHVW UHÁHFWV WKDW PDQDJHU·V VNLOO EH LW D narrower or broader range of currencies.
JB: Currency wars will provide challenges for currency management and it may dampen appetite for portfolio exposure for certain currencies. It may breakdown correlations between currency pair which would impact hedging processes. However this should improve the demand for specialist currency mandates as the environment becomes more challenging.
Do you anticipate that the European Sovereign 'HEW FULVLV ZLOO HQG XS KDYLQJ ZLGHU UDPLÀFDWLRQV for both currency investment and currency management activities elsewhere?
Autumn 2011 | Currency Investor 63
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