Currency Overlay

Currency exposure is inevitable for investors with international portfolios. The impact of the exposure on the total portfolio can be significant especially when currencies move sharply over short periods of time. This can be to the benefit or detriment at the total portfolio level, and the best way to address this risk is through active management.

At Pareto we believe that the best way to add value in currency overlay management is by controlling risk of loss. In a portfolio of overseas securities, this risk arises when translating the foreign currency exposures back into base currency. The risk can be reduced by hedging the foreign currencies back to the base currency, and value can be added by actively managing the hedge ratio.

We do not attempt to forecast future currency returns. Instead, the focus is on estimating and managing the currency risk embedded in international investment portfolios.

To achieve a desirable asymmetry of returns we have developed a proprietary, statistical model-based approach known as Currency Risk Management (CRM). It is designed to generate the highest level of upside capture consistent with an uncompromising commitment to the control of risk of loss.

CRM is provided through an overlay structure. For more information on how to access the strategy please Contact Us.