Welcome to our snapshot on dynamic
currency hedging. I’m Jeremy Schwartz, director of research at WisdomTree and
WisdomTree’s really been a pioneer at currency hedge strategy. So when we look– first launched the first currency ETF in 2009– we’re continuing the innovation with this first big family dynamically currency hedge strategies. And when I talk to investors over time, you know, they think one of the biggest challenges is really how do I time the currency hedge when it’s time to take it on, put it off. And
that’s really been a challenge. Well partnering with Record Currency Management, who’s
been in the currency business for thirty years, WisdomTree came up with a
three-factor model that looks at how do I really time these strategies– and time
the hedges so I could have one solution, whether it’s Europe, Japan, on a broader
national basis to really offer that core long-run allocation. And the signals
that we’ve developed here on slide two you can see we have three signals:
interest rates, momentum, and value. Interest rates is the relative interest
rate differentials between the U.S. and the foreign market. Momentum is the– the timing and– the short term momentum of a currency versus it’s longer-term momentum. And value is this signal of the current spot rate versus its long-term
purchasing power parity. And what you see is if you do a three-factor model, each
of these individual factors have added value over fully hedged strategies, 50%
hedged strategies, unhedged strategies. And so we think the signals themselves can really
help you time when do I wanna be in these currencies, when do I want to be
hedged on these currencies. And the value of using multiple signals as you can see, for
every individual currency, a different signal has different efficacy. The value signal in general– has been the least effective, but it does have a long-term– tendency to go
back towards valuation, when currencies get really undervalued or overvalued. The
interest rate differentials was the strongest individual factor for many of currencies, and for-broad international benchmark in aggregate, but the momentum factor as a short-term signal, it’s really been– a powerful and– and– and long-run signal for many of the individual currencies. So we think this three-factor
model together, can really help investors figure out how to time their hedges for–
for either individual currency, like the Euro or the Yen or for broader
national benchmark in general now when you combine all these signals
together, and you look how does it work for a broad international benchmark, this next
slide compares– you know, the individual correct signal by itself towards a unhedged strategy– a 50%, or a 100% strategy. And you can
see over this twenty seven-year period each of the signals over the the trishul
head strategy has added value from the valuation be signal that meant to signal
in that order being the second most powerful man in the interest rate
overlay being the most powerful single currency overlay single now if you will
get its final slide shows you where your head on individual country basis overall
few interesting points you tell you today you still be eighty-three percent
haitian the Euro other countries are hedge 50% in the
spinal column this is really what gets wrapped into our international texts is
these final head ratios combining all the information and materials signals
and this is really a european stocks japanese stocks are broader benchmark
how implementing the dynamic hey Jimmy what the hedge happened he will get we
balance every month based on the update information and the signals again we
think this could be the next evolution in currency hedging having to Namek over
way thank you for listening to our staff writer