Currency funds struggling to deliver returns

The last year or so has been a difficult time for currency fund managers – two of the key strategies typically employed in this sector, carry and momentum have yielded little in the way of ideas.

Over the long term, buying currencies with high interest rates against currencies with low interest rates has often proved a profitable strategy – however with the key interest rates of all major currencies lying between 0.5 per cent and -0.3 per cent, there is little value to be gained from this currently.

Similarly the major cross rates between dollar, yen, euro and sterling have been stuck in fairly narrow trading ranges since early 2015, with no sustained momentum to take advantage of. Many emerging market currencies, such as the Brazilian real and the Russian rouble, offered opportunities for profit for investors willing to short, however.

Not surprisingly, returns from this, fairly small, fund sector have been hard to find in recent times, not helped by generally high fee structures. The GAM Star Discretionary FX fund has been the most consistently successful in recent years, but is also relatively volatile, topping the performance table over three and five years.

For those seeking a less volatile exposure to this sector, the Absolute Insight Currency fund has offered a much steadier pattern of returns though delivering less, though still positive, returns in total. Notable over the last 12 months has been the Rogge Emerging Market Currency fund, which delivered the worst performance of the sector.

Jeremy Beckwith, Director of Manager Research, UK, Morningstar