UK - Currency overlay could play a significant part in pension fund returns, according to new statistics published by Mellon Analytical Solutions.
In order to diversify risk, the average UK pension fund has increased its allocation of overseas equities from 21% to 29% in the nine years to the end of December 2006.
If currency risk was not managed, a fund investing overseas might find itself without reward, said MAS publications and statistics manager Daniel Hall.
“The strength of sterling in 2006 highlighted the impact that fluctuations in the currency markets can have on the value of UK pension fund investments overseas.”
MAS statistics also show that currency overlay adds value in the long term. Over the five years to 31 December, 2006, managers achieved a median excess return of 0.51%.
Medium term returns, however, were shown to be less successful at -0.07% and -0.18% over one and three years to the same date.
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