Articles

"This paper discusses the excess returns and cash flows that are associated with the passive strategies to be 0%, 50%, or 100% hedged and it introduces a method to measure overlay returns relative to cash flows that presents a complete picture of how an overlay manager has performed – in real terms, relative to benchmarks, and how the cash flows of the returns relate to those of alternative passive benchmark strategies in various types of currency markets."

Pension fund consultants have found that currency managers can add substantial value and currency overlay has therefore become a “must have” for investors seeking superior investment returns… Since the decisions overlay managers make can be implemented with an FX line without having any pre-existing exposure, a currency overlay manager’s expertise can be harnessed to generate alpha from currencies to boost a portfolio’s total return… Investors with successful overlay programs are moving to add currency alpha strategies… Holland’s largest corporate pension fund has appointed A.G. Bisset to manage a currency alpha mandate.

"Kurtay Ogunc and Brian Hersey of Watson Wyatt present their findings from a study of currency overlay managers. They conclude, “Currency overlay managers bring a highly focused level of expertise to the management of currencies as they concentrate their time and energy on the foreign exchange markets that are known to possess unique dynamics compared to equity and fixed income markets… The success of the currency overlay universe is well documented in Watson Wyatt’s currency overlay manager database… There is strong empirical evidence that skillful management of currency exposures can produce attractive alphas and portfolio information ratios.”