FX FX MANAGERS
two days following CB’s intervention announcement. In September 2011, the Swiss Franc lost 10% vs. the US dollar following the announcement of the EURCHF floor at 1.20. Tese are examples of currency positions we held during that period. Sudden market re-pricings, due to unexpected policy announcements, made stop- losses ineffective, since most of these re-pricing occurred with no actual flow. To some extent, these risks are still present in many currencies, and we have adapted by making a more extensive use of option strategies, aimed at capping downside risk by construction.
FXTM Do you use a blend of strategies or one only?
AL We use a blend of strategies, combined into a single portfolio. Strategies are not looked in isolation, but rather provide venues to express several macro themes we believe are likely to influence currency markets. We select currencies that are poised to outperform (underperform) when
56 FX TRADER MAGAZINE July - September 2013 we expect multiple them. fundamental
forces (i.e. strategies) to support (undermine)
Examples of
fundamental forces are the direction of interest rates, commodity prices, equity credit markets’ performance, economic
data expectations, momentum and central banks’ policy
preferences for currency strength or weakness, etc.
our asset class and investment opportunity set to potentially deliver attractive
returns. Conversely, a
sustained US dollar bull market offers a less attractive opportunity set for foreign currency investing. Despite low correlations, generally foreign currencies tend to share positive (negative) trend-performance as dictated by US dollar bear (bull) cycles.
As per our active currency sele ct io n process, this tends to perform better in periods when economies around the world witness d i v e r g ing business cycles, c o mb i ne d with diverging monetary and fiscal policy.
FXTM What are the market conditions that you consider ideal, and which ones are the most challenging, for the performance of your strategy?
AL
As per the structural “directional” feature of our Fund (long Foreign Currencies / short US dollar), generalized US dollar bear markets provide an ideal environment for
In this environment, fundamental macro analysis finds a fertile ground, where currency trends tend to emerge and persist, offering more potential for good risk adjusted returns. Macro-momentum driven strategies also tend to perform well in
this environment. Similarly,
strategies informed on the release of economic data around the world perform well in this “fundamentals friendly” environment.
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