Currency Overlay Introduction:
The Currency Overlay Programmes offer a choice of specialist currency management solutions to help reduce risk or enhance returns either via alpha strategies or through dynamic and passive hedging. We work closely with the client to help assess their currency objectives.
Background to the Programme:
The Currency Overlay Programme commenced trading in 2005 as a managed account for an institutional client to provide active currency management to their foreign exchange exposure outside of their domiciled region. This overlay offered risk management and potential alpha through the currency strategies offered by The Cambridge Strategy.
Investment Approach:
The Currency Overlay Programme offers investors an opportunity to manage currency exposure to their international investments. Currency exposure can add significant unrewarded risk to an international investment portfolio, but conversely, managing currency risk can also be a source of further portfolio returns. The investment style and implementation framework are determined by the client’s asset portfolio and overlay objectives. These objectives can then be targeted through an allocation to one or more of the currency programmes outlined below:
Passive Hedging Programme: Straightforward negation of currency risk.
Dynamic / active hedging Programme: A hedge ratio is determined to reflect an investor’s desired currency exposure. We then use a systematic process to generate alpha within constraints and parameters that are determined by the client.
Alpha Programmes: Utilising the same investment process as our return strategies, the client has a choice of:
Developed Markets Alpha Programme: The Programme employs a Systematic Technical Strategy across the G-10 currency pairs and is designed to add value across diverse market environments. It employs a set of proprietary trading algorithms operating over various timeframes. The algorithms combine trend continuation, mean reversion and range break signals. A daily VAR limit is enforced for the strategy and additionally, each trade is given a risk allocation based on our assessment of the appropriate Risk Adjusted Trade Size (RATS).
Developing Markets Alpha Programme: This Programme combines two trading systems: The Systematic Technical Strategy as per above, and a Systematic Fundamental Strategy which is designed to anticipate currency markets moves that are the result of investment flows (foreign direct investment), which significantly impact Developing Market currencies. Allocations to the Systematic Fundamental Strategy are based on our proprietary measure of global volatility; in highly volatile markets the allocation is reduced and when volatility is low the allocation is increased. A daily VAR limit is enforced at both the aggregate programme and within each sub-strategy component.
The Cambridge Strategy believes that long run success is achieved through successful mitigation of downside returns (with risk controlled at the portfolio, strategy and individual trade levels). While daily VAR limit is enforced at the aggregate programme, sub-programme level and sub-strategy levels, a further layer of risk mitigation is incorporated within each separate strategy. For all Currency Overlay accounts risk is managed to an agreed tracking error. For the Systematic Technical Strategy each trade is given a risk allocation based on our assessment of the appropriate Risk Adjusted Trade Size (RATS). The RATS is set weekly using a proprietary methodology and profit and loss levels are set for each position prior to trade execution to further limit downside risk. Within the Systematic Fundamental Strategy, the aggregate net US dollar exposure is maintained at zero.
Programme Description:
| Description: | Absolute Return – Currency – Emerging Markets |
| Target Returns: | Client Specified |
| Target Daily Volatility: | Client Specified |
| Investment Style: | Active Currency Management – Systematic (Technical and Fundamental) |
Awards
The Cambridge Strategy Emerging Markets Alpha Programme
The Cambridge Strategy Asian Markets Alpha Programme
