A new approach to currency exposure
Most currency exposure today comes from unhedged international investments, although some investors also have allocations to active currency strategies. Our new research uses the latest developments in investment and index construction research to provide investors with a novel and powerful, methodology for understanding and managing currency risk. We describe this approach as Conscious Currency™.
Traditionally, the amount and nature of currency exposure has tended to be an outcome of the investment process. In contrast, Conscious Currency™ suggests that investors should measure and model currency as a separate exposure set, based on the behavior of the currency markets. Investors need not believe that currency is an asset class, nor that it has a positive long term return: they simply need to believe that a better description of portfolio risks will generally allow better management of those risks.
This insight provides investors with an improved currency risk management framework and with the opportunity to enhance total portfolio returns.