Why look at currency alpha strategies now?

Now may be the time to revisit alternative strategies

The choices facing investors are increasingly complex. Low interest rates and quantitative easing programmes have caused a significant proportion of global government bond markets to trade with negative yields. Other risk assets have been supported by monetary and fiscal easing, and the uncertain outlook makes it difficult to assess valuations. We believe that there are a number of features that make currency alpha strategies an attractive asset class given this backdrop.

In this paper we outline the advantages of active currency strategies:

  • Currencies are a true relative value asset class
  • Active currency strategies can be a source of pure alpha
  • Currency strategies can be highly capital efficient
  • Deep liquidity means strategies can be quickly adapted

We then provide three reasons why we believe currency volatility is unlikely to return to the lows of 2019, potentially benefiting returns:

  • The economic fallout from the current crisis is likely to be severe and long lasting
  • Central banks are unlikely to be able to successfully contain market volatility
  • The notable rise in trade frictions and uncertainty we have witnessed in the past few years is likely to mean we have seen the peak in globalization

Finally, we outline our approach to currency alpha, which is very different to the type of currency management often implemented under the umbrella of a global fixed income portfolio.



Past performance is not indicative of future results. Investment in any strategy involves a risk of loss which may partly be due to exchange rate fluctuations.

The performance results shown, whether net or gross of investment management fees, reflect the reinvestment of dividends and/or income and other earnings. Any gross of fees performance does not include fees and charges and these can have a material detrimental effect on the performance of an investment.

Any target performance aims are not a guarantee, may not be achieved and a capital loss may occur. Strategies which have a higher performance aim generally take more risk to achieve this and so have a greater potential for the returns to be significantly different than expected.

Portfolio holdings are subject to change, for information only and are not investment recommendations.

Associated investment risks

Currency risk management

Currency hedging techniques aim to eliminate the effects of changes in the exchange rate between the currency of the underlying investments and the base currency (i.e. the reporting currency) of the portfolio. These techniques may not eliminate all the currency risk.

Derivatives may be used to generate returns as well as to reduce costs and/or the overall risk of the portfolio. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment.

Investments in emerging markets can be less liquid and riskier than more developed markets and difficulties in accounting, dealing, settlement and custody may arise.

Where leverage is used through the use of swaps and other derivative instruments, this can increase the overall volatility. Any event that adversely affects the value of an investment would be magnified if leverage is employed by the portfolio and losses would be greater than if leverage were not employed.

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