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February 15th, 2019
By Scott Treacy, CFA
Given the volatility in emerging markets equity, do managers utilize currency hedging to actively lower the risk in their portfolios?
To answer this question, we first had to analyze how managers in the universe approach hedging using data from the Investment Metrics platform.
We assigned the products into four categories:
Although there are few managers in the universe with the skill set to actively hedge away the risk in their portfolios, roughly a third of the products utilize some form of currency hedging (if we include those that will defensively hedge.)
To answer the original question, “Does currency hedging reduce risk?”
We found that over the past five years, ending December 2018, all active and defensively hedged products have reduced the overall risk of their portfolios. While they have reduced overall risk, they have also underperformed managers that do not currency hedge.
This is just one example of a research piece our in-house team of experts provides our clients. Interested in learning more about our research capabilities? Request a demo of the Investment Metrics platform.
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