Currency overlay managers see mixed results
16 June 2008

Written by Sophie Baker

Currency Overlay funds had mixed results in the first quarter of 2008, according to statistics released by BNY Mellon Asset Servicing. During this period, excess returns ranged from 4.48 per cent to -2.38 per cent, with an overall median return of -0.01 per cent.

The statistics, released in BNY Mellon Asset Servicing’s latest Currency Overlay Manager Profile Analysis, reveal that these managers did add value over one and three year periods, and funds achieved median excess returns of 0.40 per cent and 0.7 per cent per annum respectively. Managers also added value over the longer term, and over five years to 31 March 2008, managers achieved an average outperformance of 0.21 per cent per annum. Currency overlay managers saw even more success with a median excess return of 0.30 per cent per annum over a ten-year period.

Funds are increasingly at risk from currency fluctuations due to rising investment in overseas assets, and the use of currency overlay managers allows pension schemes to hedge against these in exchange rates. The impact of these fluctuations was, according to BNY Mellon, notably in quarter one of 2008 when sterling fell against both the Euro and the Yen, by 8.5 per cent and 12.4 per cent respectively.

Commenting on the results, Nick Rogers, BNY Mellon Asset Servicing’s senior technical specialist, said: “During the first quarter, Dynamic managers were poor performers with a mean return of -0.5 per cent; however this was offset by a strong performance from Technical managers. Euro managers were predictably strong performers during Q1 2008, whilst overall weakness was as a result of negative performances from UK, Japanese and US currency managers.”

BNY Mellon Asset Servicing’s Currency Overlay Manager Profile Analysis includes accounts from 17 separate asset managers with a total asset value in excess of $89bn.