Auriel Dynamic Currency Hedging Strategy (DCHS)

Currency risk in institutional portfolios is a by-product of the greater push for diversification in the strategic asset allocation decision. When investing in overseas assets, it is important to realise that the return of any financial instrument is composed of two factors: the return of the underlying asset and the return of the home versus foreign exchange rate. As investors seek further diversification by investing more globally, the effect of currency returns (and their associated risk) becomes more important.

The traditional approach to mitigating this risk is for investors to hedge a fixed or static portion of this currency risk. Though the use of the static hedge is prevalent amongst practitioners, it is ultimately flawed as it fails to differentiate between the relative value of different currencies and the prevailing risk environment. Auriel’s Dynamic Currency Hedging Strategy (“DCHS”) seeks to manage the currency risk present in institutional portfolios with the specific objective of reducing the volatility associated with currencies and increasing the potential for excess returns versus a static approach.

Auriel Dynamic Currency Hedging Strategy Factsheet (pdf file)

Please note that you must be logged in to access the above links.