FOREX IS HOT
March 2008, Wealth Manager
Is it also smart as a strategic portfolio holding?
By James Picerno
Foreign exchange can be a quandary
for investment strategy. Currencies
generally suffer an expected return of zero
in the long run, a shortcoming that raises
questions about the strategic value of the
asset class. But for shorter periods, forex
risk can enhance portfolio diversification
and boost risk-adjusted performance.
Whatever their charms, currencies in
pure form traditionally have had limited
appeal for the wealth management business.
To the extent that investment strategy
for individual clients has embraced
forex, it’s usually tapped indirectly—almost
as an afterthought—through allocations
to unhedged positions in foreign
stocks and bonds.