A Russell news release said the new approach encourages investors to think about currency exposure as they would other key portfolio exposures.
This involves a staged process in which investors choose an appropriate benchmark to describe the currency markets as a whole, model the international asset markets on a hedged basis (while including as a separate potential allocation the chosen currency market benchmark), and then determine a deliberate or “conscious” allocation policy, including possible exposure to the currency markets, Russell said.
That exposure to currency can be achieved either through benchmark-replication portfolios, or through active strategies designed to produce return from additional alpha.
“For many investors, the currency exposure stemming from international equity and fixed income investments may be the single largest unmanaged position in their portfolio. It’s effectively a significant currency portfolio – but one without a thought-through investment policy,” explained Ian Toner, head of currency implementation at Russell Investments, in the news announcement.
The Russell research report is at http://www.russell.com/institutional/research_commentary/PDF/Conscious_currency_.pdf.