Opalesque Industry Update – The Parker FX Index is reporting a -0.12% return for the month of October. Sixty four
programs in the index reported October results, of which thirty reported positive results, thirty-three incurred
losses and one was flat. On a risk-adjusted basis, the Index was down -0.05% in October. The median return for
the month was down -0.06%, while the performance for October ranged from a high of +6.81% to a low of -
4.27%. Year to date, the Parker FX Index is up +1.94%. |
In addition to the broad Parker FX Index, there are two style driven sub-indices: the Parker Systematic Index, which tracks those managers whose decision process is rule based, and the Parker Discretionary Index, which tracks managers whose decision process is judgmental. During October, the Systematic Index was down -0.03% and the Discretionary Index was down -0.21%. Year to date, the Systematic Index is up +2.30% and the Discretionary Index is up +1.58%. On a risk-adjusted basis, the Parker Systematic Index was down -0.01% in October, and the Parker Discretionary Index was down -0.16%.
The top three performing constituent programs for the month of October, on a reported basis, returned +6.81%, +2.29% and +2.26%, respectively. The top three performers on a risk-adjusted basis returned +2.47%, +2.32% and +1.50%, respectively.
In October, global currency markets were again marked by a depreciating US dollar, with the DXY Index declining -1.85%. The US dollar depreciated against seven of the G-10 currencies, due to a combination of continued demand for risky assets and on expectations that the Federal Reserve will further depreciate the currency through the next round of quantitative easing (QE2). The effect of the dollar’s depreciation on the global economy was the primary topic of October’s G-20 meeting in Gyeongju, South Korea. Finance chiefs from developed and emerging economies agreed that they had to refrain from employing “competitive devaluation” as a way to defend their economies from the sliding US dollar. Despite their rhetoric, the market questioned whether countries would actually embrace purely market-determined currency rates. The largest currency mover in the G-10 was the Japanese yen, which gained +3.12% against the US dollar on the back of increased demand for the yen, with foreign banks’ surplus reserves at the Bank of Japan nearing a 5 year high. Although the euro gained +1.54% versus the US dollar in October, there remain significant concerns about the stability of the Eurozone economies.
The Parker FX Index is a performance-based benchmark that measures both the reported and the riskadjusted returns of global currency managers. It is the first index used to analyze unleveraged (risk-adjusted) performance in order to calculate pure currency alpha, or manager skill. The 298 month compounded annual return since inception (January, 1986 through October, 2010) is up +11.76% on a reported basis and up +3.14% on a riskadjusted basis.
From inception (January, 1986 through October, 2010) the compounded annual return for the Parker Systematic Index and the Parker Discretionary Index, on a reported basis, is +11.99% and +9.67%, respectively. From inception, the compounded annualized return, on a risk-adjusted basis, for the Parker Systematic Index and the Parker Discretionary Index, is +2.81% and +3.76%, respectively.
The Parker FX Index tracks the performance, or value-added, that managers have generated from positioning long or short foreign currencies. The Index is equally weighted, as opposed to capitalization weighted, to preclude very large managers from swaying the performance in a direction that may not be representative of the currency manager universe. Parker Global Strategies applies its model to the performance of a representative currency portfolio or composite, net of fees, and excluding interest for each currency manager.
The Parker FX Index currently includes 71 programs managed by 62 firms located in the US, Canada, UK, Germany, Switzerland, France, Ireland, Singapore and Australia. The 71 programs include a combination of 46 programs that are systematic and 25 programs that are discretionary. The 71 programs manage over $40 billion in currency strategy assets. The Index also includes the performance of currency managers who are no longer trading in order to address survivorship bias. Disciplines include technical, fundamental and quantitative.