UK - Currency overlay managers failed to achieve positive returns in Q3, for the first time in 12 months, according to statistics released by BNY Mellon Asset Servicing.
Results over one and three year periods were better, with median excess returns of 0.59% and 0.27% per annum respectively.
BNY Mellon noted currency overlay managers also failed to achieve positive median excess returns over a five year period, but added they did add value over 10 years.
Over the last 10 years, investment in overseas equities increased by almost 8%, and at the end of September 2007 the average UK pension fund held 28.1% of its assets in overseas equities.
BNY Mellon said as a result of the increased exposure, pension funds were increasingly at risk from currency fluctuations, in recent years currency overlay has been brought into the spotlight as pension funds adopt strategies to actively hedge the risk.
Alan Wilcock, performance and risk analytics manager, BNY Mellon Asset Servicing, said: "Over shorter periods, up to three years, we have seen the survey results swing from positive to negative and vice-versa. However, we have been accustomed to the longer-term currency overlay statistics showing median positive performance. The recent five-year result is therefore quite unusual."
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