The Case for Currency Overlay

by Ulf Lindahl

The author argues that the need for increased foreign investment exposure means increased exposure to potential currency losses, but also potential increases in total return of up to 190 basis points per year from more sophisticated management of currency risk. To Lindahl, that means pension funds and other large investment managers can no longer afford to leave their currency exposure unmanaged or passively hedged.

Inside Your SPDRs and WEBS

by Nathan Most

Modest-looking but crucial modifications to the fundamental design of Universal Investment Trusts and mutual funds are at the root of SPDRs, WEBS and Diamonds. They have given the American Stock Exchange a new lease on life. The reason is simple: The new structures allow professional investors and money managers to reap important benefits.

Diversity-Weighted Equity Indexes

by Robert Fernholz, Ph.D.

Diversity weighting, the author’s alternative to capitalization weighting, should add 45 basis points per year to returns on average, by his calculation. After 1998, when the U.S. equity markets became concentrated in a small number of the largest companies to a historic degree, this method might have even greater potential value if there is regression toward the historical mean.

Indexed Portfolios and Options

by Todd Miller

The author reviews the major pluses and minuses of using futures contracts to track an index in a passive portfolio and concludes the balance is heavily in favor of the pluses. He goes beyond futures to describe a strategy for outperforming the benchmark index using options.

Maybe Style Is Not Enough

by Peter Jankovskis, Ph.D., Janna Sampson, Giri Cherukuri

Existing growth and value indexes have been criticized for failing to deliver meaningful differences in return from the broad market

Active Countries, Passive Stocks

by James Clunie

Can a series of indexed country portfolios be actively managed at the allocation level and outperform the sum of the indexes?

Devil-Free Indexes

by John Blin

Constructing an index to include the correlations you want and exclude those you don’t want can be more complicated than it seems.

A Short Course in Currency Overlay

by Eric Brandhorst, Paul Duncombe

Plans, in general, have widely differing characteristics and objectives depending on plan maturity, workforce/retiree ratio, risk tolerance, legal restrictions, etc. There is no single currency policy that will be optimal for all. Each needs to develop a currency policy that suits its particular characteristics and objectives. Creating a currency policy requires that a number of decisions be made, and this article explores those decisions and their impact.

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