Fixed Income: Currency

J.P. Morgan Asset Management is a leading provider of currency management solutions to institutional and retail clients around the world. We have more than 30 years' experience managing currency exposures separately from underlying assets. We have offered active and passive currency hedging strategies since 1989 and launched our Dynamic Intelligent and Dynamic Insurance Currency Hedging strategies in 2012. The Currency Management Group has grown to manage approximately USD 344 billion in bespoke currency strategies, as of 31 December 2018. Our clients include governments, pension funds, insurance and fund providers.

The dedicated Currency Management Group specialise in offering customised currency solutions, tailored to the specific requirements of each client, whether that is generating excess returns from the movements of exchange rates, or controlling the currency risk inherent in cross border investments and liabilities. Clients are able to choose their strategic currency benchmark and hedge ratio as well as the blend of investment strategies, aggressiveness levels and risk parameters.

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Our key strategies are outlined below:

Passive Currency Hedging - simple, low cost approach

Our passive currency hedging strategy seeks to effectively target a tracking error consistent with the client's requirements, whilst ensuring best execution and minimization of transaction costs. The hedging strategy is implemented with careful consideration of cash flows and hedging costs within a risk controlled framework. It is a simple, low cost approach to managing currency risk. The objective of the tailored passive currency hedging program is to effectively reduce the volatility from foreign currency movements relative to 'doing nothing'. The strategy aims to manage this unrewarded currency risk in the client's international portfolio through a static hedge of the foreign currency exposures back to the base currency. It is implemented using currency forwards with the objective of minimizing tracking error relative to the benchmark, whilst at the same time controlling transaction costs and efficiently managing cash flows.

Dynamic 'Intelligent' Currency Hedging – cycle aware valuation adjustment

The strategy aims to help investors by dynamically adjusting the hedge ratio in a consistent and transparent way to benefit from those periods when there are clear and significant misalignments in the valuation of the developed markets currencies in the portfolio relative to the base currency that are unsustainable and likely to mean-revert towards fair value. The objective of the strategy is to both reduce the volatility from foreign currency movements and add longer-term value relative to a static hedge ratio by identifying and capturing medium-term turning points in currency valuation cycles.

Active Currency Management – generating alpha

We believe that the foreign exchange markets are inefficient, as the majority of market participants trade currencies without a profit motive. Instead, transactions are predominantly driven by the demand for goods and assets. We have built our investment process to capture these persistent inefficiencies by analysing a range of fundamental, quantitative and technical factors for each currency. By combining these inputs, we aim to buy cheap attractive currencies and to sell those that are expensive and unattractive. Our investment style is multi-disciplined and diversified. We seek to capture the primary drivers of a broad range of global currencies as consistently as possible. The approach is to build a portfolio of active currency positions based on their relative fundamentals, incorporating different timeframes, macro-themes and idiosyncratic views. We believe a combination of both quantitative and qualitative assessments is the best way to add value for our clients. Our philosophy and approach has remained consistent since 1989.