FTSE Group (“FTSE”), and Record Currency Management (“Record”), the specialist currency investment manager, have today launched the first set of indices within the new and innovative …...
FTSE Currency Forward Rate Bias (FRB) Index Series, allowing investors to access this alternative beta within FTSE’s range of alternative indices.
The new FRB5 indices utilise the five most widely-traded currencies (US Dollar, Euro, Japanese Yen, Pound Sterling and Swiss Franc) in a forward rate bias (also referred to as ‘carry’) strategy. Forward rate bias is the observed tendency of higher interest rate currencies to outperform lower interest rate currencies. This outperformance is captured through a series of rolling one-month forward contracts, equally-weighted across all ten currency pairs.
The indices come at a time when investors are increasingly looking at opportunities for diversification. Research from Record shows that FRB provides a fundamental and sustainable return stream that rewards the risks associated with holding higher interest rate currencies. With a low long-term correlation to other asset classes such as equities and bonds, the indices uniquely allow investors access to a pure source of alternative beta in currency markets. Based on market spot and forward prices going back to 1978, the index series is one of very few to demonstrate a long-term return over 30 years that is comparable to that of global equities and superior to that of global bonds, with volatility comparable to bonds and lower than equities. The annualised return of the FTSE Currency FRB5 total return index in USD is 9.7% p.a. since 1978.
The new indices will be calculated on a fully-investable basis and published daily by FTSE (both excess return and total return) and are the first in a range of currency indices that FTSE and Record will work together on. These indices can be used for portfolio construction, index-tracking management, including within financial products such as ETFs and benchmarking active currency strategies.
Source: ETFWorld – FTSE Group
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