Currency Exposure Diversifier Or Unrewarded Risk?

Currency Exposure Diversifier Or Unrewarded Risk? by Yusuke Khan, CFA – Senior Consultant, Pavilion Advisory Group Ltd.

Currency movements have the potential to impact significantly the return and risk profiles of globally-invested portfolios, especially in an environment of renewed talk of currency wars. In parallel, fears over the state of affairs in China and other developing economies have led to a flight of capital into perceived “safe haven” currencies such as the US Dollar or the Japanese Yen. The currencies of commodity exporting, or otherwise cyclical economies, have been caught in this maelstrom; in particular the Canadian dollar sold off sharply along with the price of oil.

In this context, and in an environment where risk management policies are...