507A7B86-7507-41CB-8F0A-9AD191E32DA5 513D0B9D-7474-4D61-863F-70F1B3696FB7 60F0322F-B5F4-4A4F-B505-A8773B90F3B9 Comments A5B32EC7-3D41-482F-8D63-40B8CC4B0807 86DDA3D7-F193-4FF9-BE89-5AF7F4C92A8F 1FAE3C2F-8600-47BE-8D04-C46DC4FFD6B0 47ACF625-4F24-4613-9C4E-5E81CABE1FBA FB57FEB0-874D-4585-BF2D-FAAE8EBC17F6 AD97905C-02C9-4A07-9EEA-DA1F36CC7FA8 8727CDE7-CFD1-40EA-A8AF-256882E677CA B052573C-CEE4-4CD1-B86F-C9CB0202622C 1FDA88B9-6396-4BE0-B01D-4DC4FA38A632 6CD0F19E-3C61-44FC-9723-C7737416CD7C 62D3F811-1C6C-477C-972B-FE52539070FC•• 1FAE3C2F-8600-47BE-8D04-C46DC4FFD6B0 47ACF625-4F24-4613-9C4E-5E81CABE1FBA FB57FEB0-874D-4585-BF2D-FAAE8EBC17F6 EF459BAF-1347-4C71-9008-BDB3136FCCE8 3BB10396-3999-4821-82D8-3568DE598D06 F3D95CB7-5CF3-4B27-8B55-AA78EDF89759 63057605-E453-4FDE-89BC-ABD2BC6600E2 Views 6CD0F19E-3C61-44FC-9723-C7737416CD7C

Cookie settings

When you visit any website, it may store or retrieve information on your browser, mostly in the form of cookies. This information might be about you, your preferences or your device and is mostly used to make the site work as you expect it to. The information does not usually directly identify you, but it can give you a more personalized web experience. Because we respect your right to privacy, you can choose not to allow some types of cookies. Click on the different category headings to find out more and change our default settings. However, blocking some types of cookies may impact your experience of the site and the services we are able to offer. Cookie policy

    image image

    Currency hedging solutions: an introductory guide

    Currency hedging solutions: an introductory guide

    14 May 2020 Solutions
    Explore how currency hedging solutions can help manage risk

    As portfolios have diversified internationally, it has become increasingly important for institutional investors to manage currency risk. While geographical diversification is a key tool in spreading investment risk, investors are presented with another, unintended risk, that of international currency exposure.

    In the short term, currency volatility can be beneficial or detrimental. However, it is generally agreed that over the long-term investors should not expect to gain from a passive exposure to developed market currency exposures.

    We explore how currency hedging solutions can help investors manage these risks and also provide a potential source of return which is uncorrelated to their other investments. In particular, we look at some of the practical aspects of managing currency risk:

    • The starting point: setting up a strategic currency hedge ratio
    • Passive currency overlays: how to implement the strategic hedge ratio as efficiently as possible and avoid the pitfalls
    • Dynamic currency overlays: how to deviate from the strategic hedge ratio to generate reliable and repeating returns
    • Emerging market currency overlays: overcoming the additional barriers when investing in developing markets
    • Customisation: Three ways to increase the customisation of a currency solution
    • Implementation considerations: structure, liquidity and specialism

    Currency: A major source of risk and uncorrelated return opportunity (returns versus the US dollar 1990 to 2019)

    Source: Bloomberg, Insight Investment, as at March 2020.

    image
    Download PDF
    1245 kb
    Back to top