For the second consecutive quarter, currency overlay managers failed to add value says BNY Mellon Asset Servicing.
Despite this, managers still achieved an excess return over the year of 0.26%, as a result of stronger performances in the first half of 2007.
BNY Mellon Asset Servicings latest Currency Overlay Manager Profile Analysis reveals that these managers achieved a median excess return of -0.32% for the quarter ending 31 December 2007.
Over the medium term currency overlay managers failed to beat the benchmark, with three and five year median returns of -0.23% p.a. and -0.03% p.a. respectively. Measured over longer periods, these managers outperformed relative to the benchmark with a median excess return of 0.25% p.a. over seven years and 0.16% p.a. over 10 years.
“2007 was a rollercoaster year for most investment types, with the summer proving a turning point for equities, bonds and property. Currency overlay managers had a similar turning point, with their second half losses almost wiping out the first half gains,” says Alan Wilcock, BNY Mellon Asset Servicings Performance and Risk Analytics manager.
The use of currency overlay managers allows pension schemes to hedge against fluctuations in exchange rates. This means that where an investment performs well in local terms, but there has been an adverse movement in exchange rates, the scheme will still benefit from the investment performance. Over the last 10 years we have seen proportions in overseas equities rise from 18.6%to 26.4% and as a result, currency overlay strategies have become increasingly important for UK pension funds.
BNY Mellon Asset Servicing publishes the results of its Currency Overlay Manager Profile Analysis each quarter and has been tracking these managers performance since 2000. This survey examines the overall excess returns achieved by active currency overlay managers against benchmark, across different styles, hedge ratios and base currencies. The results of this survey have now been published for the quarter ending 31 December 2007.
The Currency Overlay Manager Profile Analysis is a BNY Mellon Asset Servicing service from the performance and risk analytics division. The universe includes accounts from 17 separate asset managers with a total asset value in excess of $93 billion.