Peter Doherty, manager of the Tideway Global Navigator fund, can invest in both fixed interest and currency, but his fund is currently skewed towards currency bets: “We are trying to diversify ourselves away from sterling, which had been supported by a safe haven flight out of the euro. We trade currencies on a 6-12 month view. We keep a portfolio of dollar and sterling bonds and then change the foreign exchange exposure using forwards. We find that you have to be patient with currencies, particularly if you are treating them as an investment theme.”
Mr Papasavvas steers clear of the big, yen versus dollar, headline-making trades, suggesting that everyone is usually trying to benefit at the same time and risk is better managed through a series of smaller, under-the-radar trades. However, anyone trading independently, rather than through funds, might find themselves limited to trading in the larger currency movements. These are currently being seen in the yen, but Mr Lancaster says the real area of interest in the past year has been the euro: “It is up 10 per cent from its lows in the middle of last year, reflecting a pricing out of extreme ‘tail risk’ for the eurozone by investors,” he says.
Currencies represent a good diversifier away from bonds and equities and can be used to take positions on changes in the prevailing macroeconomic situation. However, only a handful of currency funds have proved themselves as top performers for the longer term, so investors need to ensure they have confidence in the manager’s skill.
Cherry Reynard is a freelance journalist
