DYNAMIC CURRENCY HEDGING

Characteristics

Tailored to individual base currencies.

Customised benchmarks from fully hedged to unhedged.

Can be calibrated and rebalanced versus index weights or actual portfolio weights.

We believe that unmanaged (passively held) foreign currency exposure is sub-optimal and that dynamic hedging provides an effective solution to manage this risk and improve upon the results of a passive hedge by mitigating drawdowns and enhancing cash flows.

Approach

Millennium Global’s dynamic hedging programmes are designed to capture currency market drivers that impact FX over different time horizons. These drivers include momentum (short-term), macroeconomic views (medium-term), and risk premia (long-term).

Dynamic hedging programmes focus on developed market currencies which typically account for the vast majority of currency risk in an international portfolio.

We adopt a systematic approach using quantitative models which generate signals for each developed market currency exposure in a portfolio versus the base currency.

Benefits

A primary aim of Dynamic Hedging is to minimise drawdowns versus both unhedged or partially hedged approaches.

The cash flow profile versus a passive hedged solution is enhanced by effectively increasing the hedge during periods of base currency appreciation and reducing the hedge during periods of depreciation.

This strategy seeks to reduce risk compared with having unhedged currency exposure and to manage risk more effectively than a passive hedge.