Investment Objective

Investing in overseas assets creates a currency risk exposure for the portfolio. A key decision is to determine an appropriate risk management/hedging strategy to either accept or mitigate the currency risk, which is reflected in the target or strategic hedge ratio. TGM’s Dynamic Currency Overlay adds value by dynamically adjusting the individual currency hedge ratios around the client’s target ratio based on currency forecasts while controlling for volatility.

Investment Strategy

TGM’s Dynamic Currency Overlay process uses proprietary quantitative models for forecasting currencies combined with volatility and momentum indicators to dynamically adjust currency hedge ratios relative to the client’s target hedge ratio levels, to generate additional risk adjusted returns.

TGM offers two approaches of its Dynamic Currency Overlay process. The first was developed in response to clients having bands set with target levels for the currency and once they are hit for a new hedge ratio to be implemented. The second is to use a proprietary optimisation procedure that results in more frequent incremental risk-adjusted changes in hedge ratios.

MSCI World in AUD 50% Hedged1 TGM Dynamic Currency Overlay (Bands)1 TGM Dynamic Currency Overlay (Optimiser)1
1 month 2.02% 2.21% 2.02%
3 months 0.63% 0.63% 0.63%
6 months 3.69% 3.21% 3.54%
1 year 15.27% 14.65% 13.92%
3 years (p.a.) 13.91% 13.43% 13.08%
5 years (p.a.) 11.22% 11.29% 10.53%
10 years (p.a.) 12.14% 12.24% 12.11%
Annualised Return2 8.21% 9.55% 9.00%
Annualised Volatility2 11.16% 10.98% 11.22%
Return/Risk Ratio2 0.74 0.87 0.80

For further information on how Dynamic Currency Hedging can benefit your fund please contact us here at TGM.

 The performance numbers are total returns in that they include both equity and currency return components. The returns are net of transaction costs but gross of management fees. Note that the performance numbers are based on out-of-sample currency forecasts from TGM’s dynamic currency overlay process.  

1 These are total returns in that they include the underlying equity market return (MSCI ACWI ex Australia Gross Return Index) plus the AUD currency hedge return. 

2 Return numbers are for the period April 2005 to October 2019.

Disclaimer

This Website is for information purposes only and is not intended to be relied upon as a forecast, research or investment advice. The information on this Website does not constitute a recommendation, offer or solicitation to buy or sell any product or service or to adopt any investment strategy, nor shall any such product or service be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Although this material is based upon information that TGM considers reliable and endeavours to keep current, TGM does not assure that this material is accurate, current or complete, and it should not be relied upon as such. Any opinions expressed on this Website may change as subsequent conditions vary. Decisions based on information contained on this Website are the sole responsibility of the visitor. In exchange for using this Website, the visitor agrees to indemnify and hold TGM, its officers, directors, employees, affiliates, agents, licensors and suppliers harmless against any and all claims, losses, liability, costs and expenses arising from your use of this Website, from your violation of these Terms or from any decisions that the visitor makes based on such information.

The investments and strategies discussed in the Website may not be suitable for all investors and are not obligations of TGM or its affiliates or guaranteed by TGM or its affiliates. TGM makes no representations that the contents are appropriate for use in all locations, or that the products or services discussed on this site are available or appropriate for sale or use in all jurisdictions or countries, or by all investors or counterparties. By making available information on the Website, TGM does not represent that any investment vehicle is available or suitable for any particular user. All persons and entities accessing the Web Site do so on their own initiative and are responsible for compliance with applicable local laws and regulations.

All investments involve risk and may lose value. The value of your investment can go down depending upon market conditions.  All investments carry risk and all investment decisions of an individual remain the responsibility of that individual. There is no guarantee that products or services will result in profits or that they will not result in losses. All investors are advised to fully understand all risks associated with any kind of investing they choose to do.

Past performance whether actual or simulated performance is not necessarily indicative of future results. Unless specifically noted otherwise, all return examples provided on our website and publications are based on simulated results. We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because simulated performance and past performance are not necessarily indicative of future results.