Confessions of a Currency Manager

Executive summary:

  • Predicting spot exchanges is tricky, but there are still ways of adding value in currency markets, including through a disciplined approach we call currency factor investing
  • Being a value investor requires more patience than most investors realize
  • Loss aversion is a common behavioral bias that can lead currency managers to make poor decisions
  • A trusted partner—especially one whose been through all the market cycles, learned all the lessons, and built robust processes to apply those lessons to your specific circumstance—can be of great value for currency investors.

Having been through several bear markets, Van Luu, our Global Head of FI and FX, has his fair share of scars. As such, Van has seen even the largest investors make both good and bad decisions when it comes to managing currency. In this article, he shares the view from the currency trenches.

Confession #1: Currency markets are hard to predict

Maybe most investors would say this about their own asset class, but currency markets are really hard to forecast. When I rejoined Russell Investments eight years ago, I received a warm welcome from many familiar faces. A typical first conversation went like this: “We have been in need of currency forecasts, and it is really great that you are coming onboard to take ownership of the currency call.” Behind the pleasantries, most people must have quietly thought: "The poor guy. Currency prediction is such a fool's game." Some more plain-spoken colleagues told me as such.