Currency Hedging
Currency overlay generally refers to the separate management of currency risks embedded in a global investment portfolio. The underlying portfolio can be invested in any asset class, e.g., fixed income, equities, alternatives, etc.
A currency overlay is used to separate currency risk from the risk of the underlying asset classes, centralise the currency risks in the underlying portfolio(s) and manage them effectively and efficiently.
Currency risk can be managed either passively or actively:
- Passive currency overlay or hedging programs systematically remove a pre-determined proportion of currency risk (e.g., 50%, 75% or 100%).
- Active currency overlay or active hedging programs are designed to manage currency risk in order to add value to the overall portfolio. The active currency hedge manager actively increases the hedge ratio applied to currencies that are expected to depreciate, thus protecting the investor from exposure to depreciating foreign currencies; and actively reduces the hedge ratio applied to currencies that are expected to appreciate, allowing the investor to benefit from exposure to those currencies.
For more information on Overlay Asset Management’s currency hedging solutions, please contact us.