Investors should keep sight of their long-term preferred strategic hedge ratio while the currency markets are volatile, according to a report released by Rob Pereira and Geoff Warren, members of Russell Investment’s capital markets research team.
To survive volatile times in currency markets, investors need a solid framework to manage currency exposure.
The report said the current weakness of the currency provides an opportunity for investors who are holding a hedge ratio below their long-term strategic target to re-position their portfolio. It said investors should adopt a fully hedged position first, which is then varied downwards based on their own circumstances and needs, as well as low expectations for the forward rate bias and the expectation of a large dollar depreciation over time.
Investors need to take the volatile market conditions into account when deciding on the right implementation approach, according to the report.
Decision-making and governance structures must be clear and robust to implement any changes to the hedge ratio in a disciplined manner.
