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Foreign Exchange

Parker FX Index down -1.2% in March; discretionary strategies outperform systematic

More than two thirds of the currency managers who reported results to Parker Global Strategies' independent investable FX index incurred losses in March, with the index losing -1.2% for the month.

Of the 51 programmes that reported results, 36 incurred losses, 14 delivered positive returns and one manager was flat.

The Parker FX Index includes 56 programmes that manage more than $45 billion in currency strategy assets.

The median return for March was down nearly 1% from the previous month, while the performance ranged from a high of +2.6% to a low of -8%.

Parker attributed the lacklustre performance of many currency managers to disappointing economic data across the eurozone and Asia, with the US dollar outperforming both developed and emerging market currencies.

The US dollar index was 0.34% higher in March, gaining 0.81% against the euro and 1.9% against the yen.

"Austerity measures in place by the eurozone periphery have dampened global trade, resulting in weaker industrial production," says Parker. "Fears of a hard landing in China demonstrated by weak PMI manufacturing figures further led to a broad-based de-risking."

For the month, the Australian and New Zealand dollars were among the worst-performing main currencies, weakening -4.14% and -2.79% respectively against the dollar.

Longer term performance

Since the start of the year, the index is roughly flat, down -0.23%. During the past 12 months, the index is down -1.9%. Looking at a longer time horizon, returns are more encouraging, with compounded annual returns since inception in January 1986 at +11%.

Parker also analyses unleveraged performance “or risk-adjusted returns“ to calculate pure FX alpha of global currency managers.

Cumulative risk-adjusted returns during the past 12 months are -0.81%, and -0.10% year-to-date. Since inception, risk-adjusted annual returns are +3%.

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 judgemental.

In March, the discretionary index decreased by 0.35%, outperforming the systematic index, which was down more than 2%. On a risk-adjusted basis, however, the difference in returns was less pronounced, with the systematic index down 0.73% and the discretionary down 0.25%.

The Parker FX 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 broader 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.

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