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Parker FX Index up +0.14% in May (+1.39% YTD), top performer up +9.62%

Monday, July 12, 2010
Opalesque Industry Update – The Parker FX Index is reporting a +0.14% return for the month of May. Sixty-nine programs in the index reported May results, of which thirty-nine reported positive results and thirty incurred losses. On a risk-adjusted basis, the Index was up +0.05% in May. The median return for the month was up +0.36%, while the performance for May ranged from a high of +9.62% to a low of -12.35%. Year to date, the Parker FX Index is up +1.39%.

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 May, the Systematic Index was up +0.30% and the Discretionary Index was down -0.03%. Year to date, the Systematic Index is up +1.29% and the Discretionary Index is up +1.50%. On a risk-adjusted basis, the Parker Systematic Index was up +0.10% in May, and the Parker Discretionary Index was down -0.01%.

The top three performing constituent programs for the month of May, on a reported basis, returned +9.62%, +9.52% and +8.49%, respectively. The top three performers on a risk-adjusted basis returned +4.75%, +3.83% and +3.53%, respectively.

Currency markets in May were marked by significant risk aversion amid fears of a double dip recession, increased risk contagion from the European sovereign debt crisis and significant declines in emerging markets. As a result, volatility in the currency markets spiked, with the JP Morgan Volatility G7 Index rising as much has 45% mid month on heavy selling in European and emerging markets, leading investors to store assets in the Japanese yen and the US dollar, the two “haven” currencies.

European currencies declined precipitously with the Euro falling -7.4% and -10% relative to the dollar and the yen, respectively. Elsewhere, Asian currencies sold off, with the Korean won and the Indian rupee declining -7.7% and -4.3% vs. the dollar, respectively. Eastern European currencies also saw massive declines, particularly the Hungarian forint, which was down -9.4% against the dollar on concerns about a Hungarian default. Commodity-linked currencies also sold off in May, including the Norwegian krona (-9% vs. the USD) and the New Zealand dollar (-6.6%). The best performing managers in the index were those that that employ a valuation model component (i.e., PPP) while managers with a significant carry component were the largest detractors to returns.

The Parker FX Index is a performance-based benchmark that measures both the reported and the risk-adjusted 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 293 month compounded annual return since inception (January, 1986 through May, 2010) is up +11.95% on a reported basis and up +3.16% on a risk-adjusted basis.

From inception (January, 1986 through May, 2010) the compounded annual return for the Parker Systematic Index and the Parker Discretionary Index, on a reported basis, is +12.16% and +9.84% respectively. From inception, the compounded annualized return, on a risk-adjusted basis, for the Parker Systematic Index and the Parker Discretionary Index, is +2.82% 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.


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