Currency Management

Why Consider Active Currency Investing?

Active currency is a liquid alternative investment strategy with many attributes that make it an attractive addition to investment portfolios:

  1. It can be implemented as a capital efficient unfunded strategy with no upfront requirement to allocate portfolio risk capital, or in a fully funded comingled vehicle
  2. Standalone returns to a skilled cohort of active currency managers, including CIBC Asset Management, have been significantly positive over an extended period
  3. Returns to active currency are diversifying to traditional and other alternative asset classes
  4. Active currency is appropriate for both defined benefit and defined contribution investment plans

Our active currency investment philosophy emphasizes the importance of market inefficiencies and anomalies in determining the behaviour of currency returns. Despite high market liquidity, these inefficiencies and anomalies are expected to persist, reflecting the presence of heterogeneous participants (including some with non-profit objectives) behavioural traits and investment horizons in the currency market.

Our Currency Management Capabilities

Absolute Return – Pure Active

  • An unconstrained absolute return strategy
  • Adds a diversifying source of active, alpha return to portfolio
  • Implement as an overlay or more usually, in a standalone sleeve
  • Benchmark is typically cash interest rate

Active Hedging (Constrained)

  • Take market conditions and prospects for each currency into consideration when hedging
  • Assign a small active risk budget to generate a diversifying additional source of return
  • Benchmark is often underlying portfolio exposures, but can also be cash interest rate

Passive Hedging

  • Hedge a constant proportion of currency exposure inherited from international investments
  • Mitigate risk contribution of this currency exposure. Generally, no associated expected return
  • Objective is to minimize potential losses and gains from changes in exchange rates

To learn about our currency management strategies, send an email to institutional@cibc.comOpens your email app.