CURRENCY VOLATILITY PROMPTS RADICAL RETHINK

By Steve Johnson
Last year's wild swings in the foreign exchange markets appear to be prompting a strategic rethink of the role of currency as an asset class.
Although currency is now widely accepted as a legitimate asset class, it suffers from being a zero sum game, ie it has a market beta of zero, meaning there is no reason to believe investors as a whole should make money.
Industry proponents get around this by arguing that the infamous carry trade – the practise of borrowing in low-yielding currencies and buying higher-yielding ones – benefits from a risk premium akin to that of equity markets, and therefore can deliver long-term positive returns.
However, the carry trade, which proved highly lucrative between 2000 and 2007, reversed sharply last year, as it has a tendency to do at periodic intervals. “Funding” currencies such as the Swiss franc and Japanese yen rallied strongly against higher yielding currencies such as the Australian and New Zealand dollars and the British pound.
A “naive” dummy carry trade portfolio constructed by Royal Bank of Scotland, and believed to be a fairly accurate representation of the real funds operating in this field, lost 32 per cent last year. And while this does not invalidate the concept of the carry trade as an investment strategy benefiting from a risk premium, it has led investors to reassess the manner in which they access the forex markets.
In essence, some investors seem to be switching from single strategy funds to more wide-ranging vehicles that can switch between strategies at the drop of a hat.
“There has been a big allocation away from carry, long-term trend following and short volatility. There has been a strong allocation primarily to fundamental discretionary, event driven and mean reversion,” says Mark Farrington, head of currency at Principal Global Investors, which manages $5.2bn (£3.6bn, €3.8bn) in forex.
“You either need to have a discretionary fundamental manager or someone with a multi-strategy approach. Each style has periods of outperformance and under performance. The more profitable approach is to have a dynamic approach to styles.”
James Binny, head of index research at RBS, adds: “I have heard that some mandates have switched to be more discretionary, just generally getting more balanced, and my hope is this is the way it will go.
“People might be better off going for a hybrid manager that does a little bit of everything. They won't be best of breed in every area but they would be good enough.”
But as logical as this may sound, ditching the carry trade in favour of a more freewheeling approach reintroduces the problem of the underlying asset class containing no beta, so any gains by one participant must be balanced by losses for another.
Forex cheerleaders argue it is possible for active traders as a whole to make money because so many participants, such as central banks, asset managers passively hedging foreign exposure and the corporate sector, are non-profit maximisers.
However, returns have fallen as more profit seekers have entered the sector, raising the possibility that excess returns are being arbitraged away.
According to Deutsche Bank, a basket of forex strategies would have delivered annualised returns of 12 per cent between 1980 and 2005.
However, an equally weighted basket of the four dummy portfolios operated by RBS (and previously ABN Amro) encompassing value, trend, and short volatility as well as carry, would have lost money for the fourth straight year in 2008, having never experienced more than one successive down year since the introduction of floating exchange rates in 1971.
Real returns also appear to be mixed. According to BNY Mellon Asset Servicing, currency overlay managers have produced negative excess returns (ie over cash) over one year, three years and five years, although they are positive over longer periods.
Mercer, the consultancy, found the median active manager generated excess returns of 1.4 per cent last year, but zero over three years. And these returns are before fees.
Deutsche's FX Select database, perhaps the most comprehensive guide to the performance of unconstrained currency managers, found funds have delivered total accumulated excess returns of around 5 per cent since 2004. Further, total returns last year, at 5.3 per cent, were the highest since the days of double-digit returns in 2003.
Mr Binny believes that, despite the sharp reverse, the carry trade is still a genuine source of “alternative beta”, with the drawdown since June 2007 “not inconsistent” with previous losses (see table above).
“It's not unprecedented. If you consider it a form of alternative beta, it's really the same or slightly better than equity beta,” he says. “What worries me from the current industry perspective was that the end investor was probably overweight in the carry trade. Carry was a bubble that grew with all the other bubbles.”
Whatever the truth of this argument, interest in investing in forex has been piqued by the woes of other asset classes.
“It was the only major asset class that was up last year. People are increasing their exposure to currencies, although that is probably more to do with liquidity than anything else,” says Bilal Hafeez, global head of forex strategy at Deutsche Bank, of the $3,200bn-a-day market.
“We have non-FX clients who want to trade currencies now because their own markets are closed and the fact that currency did reasonably well,” says Mr Hafeez, who cites credit and long/short equity funds as among those that are turning to forex to avoid severe illiquidity and political restrictions on their activities.
“Governments are not focusing on this. No one is complaining about selling currencies short. The only risk would be if governments introduced capital controls and that would be a very big change in the financial architecture,” he adds.
Diane Miller, principal at Mercer, reports increased interest as returns from currency, although “not stunning”, have outstripped most other assets of late.
Mr Farrington says existing clients have increased their allocations, although potential new clients appear to be deferring the issuance of new mandates in any asset class.

外汇交易是零和游戏吗？
作者：史蒂夫•约翰逊(Steve Johnson)
去年外汇市场剧烈波动，似乎引发了人们对货币作为一种资产类别这一角色的反思。
尽管目前货币被广泛认为是一种合理的资产类别，但外汇交易是一场零和游戏，即它的市场贝塔系数为零，也就是说，我们没有理由相信投资者整体会赚钱。
行业倡导者不这么认为，他们表示，臭名昭著的套利交易——一种借入低息货币并转投高收益货币的行为——从风险溢价中获益，这个风险溢价与股市的风险溢价相似。因此，套利交易可以创造出长期正收益。
然而，2000年至2007年期间证明非常有利可图的套利交易去年开始急转直下，因为做套利交易有其周期性间歇。瑞士法郎和日元等“低息”货币兑诸如澳币、新西兰元和英镑之类的高息货币大幅升值。
苏格兰皇家银行(Royal Bank of Scotland)构建的一个“测试型”傻瓜套利组合，被认为能非常准确地反应这一领域中各大基金的表现，但去年损失了32%。虽然这并未推翻套利交易作为一种从风险溢价中获益的投资策略概念，但它已导致投资者开始重新评估他们进入外汇市场的方式。
本质上说，一些投资者似乎在使自己的投资方式从单个策略基金转向更为广泛的、并且一有机会就可以转换策略的投资工具。
信安环球投资公司(Principal Global Investors)货币负责人马克•法灵顿(Mark Farrington)说：“有一大块配置资金从利差交易、长期趋势追踪和空头波动性策略转向了其他策略。迄今一直有大量资金配置在基本面全权管理、事件驱动和均值回归策略上。”信安环球投资公司现在外汇市场管理着52亿美元(合36亿英镑，38亿欧元)资金。
“你要么需要一个行事审慎的基本面管理人，要么需要一个采取多边交易策略的管理人。每种投资方式都有其表现好和表现差的时段。利润更高的方法是采取一个动态投资风格。”
苏格兰皇家银行指数研究负责人詹姆斯•宾尼(James Binny)补充道：“我听说一些投资委托书已转向更加全权委托型了，总体上使投资变得更平衡，我希望这种方式将管用。”
“如果人们寻找一位各种投资都会做一点的混合型投资经理的话，那么他们的境况或许会好一些。这些经理不会是各个投资领域的精英，但他们已经足够好了。”
尽管这听上去似乎很符合逻辑，但放弃套利交易，转而采取一种更随意的投资方式，会重新引发无风险基本资产类别的问题，因此一方的收益必然意味着另一方的损失。
外汇市场的拥护者辩称，对积极交易者来说，总体上实现赚钱还是有可能的，因为许多市场参与者，如各大央行、被动规避外币风险敞口的资产经理以及公司部门，都不是利润最大化的追求者。
然而，随着越来越多的利润寻求者进入市场，收益已经下降，增加了超额收益被套利交易掏空的可能性。
德意志银行(Deutsche Bank)称，1980年至2005年期间，某个一揽子外汇策略所创造的年收益率为12%。
然而，由苏格兰皇家银行（原荷兰银行）管理的四个平均加权傻瓜投资组合（围绕价值、趋势、做空波动和套利交易）在2008年连续4年遭受损失，自1971年引进浮动汇率之后还从未经历过连续1年以上蒙受损失的情形。
实际收益似乎也是喜忧参半。据纽约银行梅隆资产管理国际有限公司(NY Mellon Asset Servicing)的数据，货币管理外包经理在1年期、3年期和5年期的投资中所获得的超额收益为负值，尽管他们更长期限的投资回报是正值。
美世投资咨询公司(Mercer)发现，去年，中值积极型经理共创造了1.4%的超额回报率，但三年期投资的超额收益率则为零。而且这些收益是未交各种费用之前的。
德意志银行的FX Select数据库或许是随意型货币经理表现最全面的指南。它显示，自2004年以来，各大基金所产生的总累计超额回报率约为5%。此外，去年5.3%的总收益是2003年两位数回报以来的最高水平。
宾尼先生相信，由于自2007年6月以来的萎缩与之前的损失“不一致”（见上图标），因此，尽管套利交易的收益急转直下，但它仍是“另类贝塔”的真正来源。
“这并不是空前的。如果你把它视为‘另类贝塔'的一种形式，那么它就好比是股票贝塔，甚至比股票贝塔更好一点，”他说。“根据目前行业的现状，令我担心的是，终端投资者可能增持了套利交易。套利交易是一种随其它泡沫共同增长的泡沫。”
无论这一点正确与否，其它资产类别遭遇的灾难打击了人们投资外汇的兴趣。
“它是去年唯一上升的主要资产类别。人们在加大对货币的投资，虽然较之于其它因素，这和流动性因素的关系可能更大，”比拉尔•哈菲兹(Bilal Hafeez)说道。他是德意志银行外汇策略部门全球负责人，负责管理这个日交易量达3.2万亿美元的市场。
“现在，我们的一些非外汇市场客户想要做些货币交易，因为他们自己的市场已经关闭，而外汇市场表现相当不错，”哈菲兹先生说道。他还说，一些信贷基金和多/空股票基金正在转向外汇市场，以避免缺乏流动性和对他们活动的政治限制。
“各国政府的注意力不在这一点上。没有人在抱怨做空货币。唯一的风险是，如果政府对资本实行控制，那么这将是金融体系中一个非常大的变化，”他补充道。
美世咨询主合伙人黛安•米勒(Diane Miller)报告说，由于外汇市场的收益超过了多数其它资产类别，虽然还“不是那么令人叹为观止”，但人们对货币的兴趣渐增。
法灵顿先生说，现有投资者已增加了外汇市场的资金配额，尽管潜在的新客户似乎在推迟投资任何一类资产类别的委托授权。
译者/红岭
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