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Are Your Retirement Funds Dynamically Currency Hedged?

Rohanna Wise

The OECD Guidelines for Pension Fund Governance require implementation of an adequate risk measurement and management system (OECD.org), but what does that mean when it comes to currency risk?

As an asset manager, you take on a number of duties far beyond diligence and selection of investments. You have compliance responsibilities, team management, and meetings upon meetings. Which is why every piece of work added to the picture of how your funds produce returns are competing with other critical functions at the company.

Take the example of currency hedging. Over the last decade, there has been a marked increase in consumer interest in international mutual funds and ETFs. One notable example is WisdomTree, which provides many currency-managed funds, and continues to roll out more. Why are they doing this? According to Chief Investment Strategist Luciano Siracusano, ‘WisdomTree pioneered weighting equity markets by their dividend streams, launching international small-cap ETFs and currency-hedging international equity portfolios. Now that the dollar has weakened this year, I would expect “dynamic hedging” of foreign currency exposure to garner greater attention.’ (Nasdaq.com)

But ‘dynamic hedging’ is not an easy undertaking without technology automation to support the process. Given the opportunities in emerging markets, plus most major asset managers having a truly global presence, managing currency risk can create a real impact to returns and the means to manage currency exposure, done manually or outsourced, can drive up costs. However, there are ways to get good value for currency management investment.

WiseRisk was created to help asset managers be well-positioned from a currency hedging standpoint. Wise Trading Technologies’ anchor toolkit has the ability to provide near real-time insight into currency hedging status and provides a simple, technology-driven way to manage currency within the comfort zone of asset managers and their institutions.