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Quest for returns leads to forex

Years of heavy losses from traditional assets are prompting investors to seek new havens for their money. Overlay managers sing the praises of going beyond hedging to invest actively in forex.

MONEY MANAGERS ARE returning to the markets this January full of fear. They can't afford to lose more, but where are this year's returns to be found?

Ask any investment consultant and you will be told that expert currency management means less risk and, yes, added alpha. Good, stable performance, just what the doctor has ordered, is possible with currencies.

Investors have tended to scoff at the notion of currencies as return-generating assets. But now that may be about to change. Foreign exchange, the biggest traded financial market in the world, may finally take its place as a legitimate venue for pension funds and others to invest.

Following three years of negative equity market returns, strategists have been putting out various guesses about what 2003 will bring. JPMorgan suggests that by the end of this year the S&P500 will have fallen to 800: another 12% down from where it stood in mid-December when it had already lost over 21% over the course of 2002. Lehman Brothers expects no more than 3% returns on global government bonds this year.

As for credit markets, after the horrific and unexpected losses on big issuers such as Enron and WorldCom in 2002, who knows? There's also a lot of nervousness about commercial and residential property.

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