Event Description

This study provides a detailed framework for incorporating currencies into multi asset portfolios, emphasizing the diversification benefits of active currency exposure. Our findings demonstrate that adding currencies to a traditional bonds and equities portfolio can materially improve risk adjusted returns. We present three systematic approaches to modeling foreign exchange within asset allocation frameworks, each targeting distinct exposures to the carry, value, and trend factors. Across all three models, active currency strategies enhance drawdown profiles and reduce overall portfolio volatility, while delivering incremental positive returns. Because currencies lack fixed cash flows and typically generate near zero long term passive returns, pure passive investment in FX is impractical. The major contribution of this study is therefore the development of a systematic methodology for estimating and implementing active currency benchmarks—tools that investors can reliably use within portfolio construction and tactical asset allocation processes.