EMFX plays small role in portfolio allocation

While FX provides low potential returns on a fully risk-adjusted basis, carry trade makes emerging market currencies more attractive

Risk modelling
Asset measure: risk-adjusted return of currencies is low compared with other asset classes, panellists said

Asset managers participating on a panel at the 15th FX Week USA conference agreed that a fully hedged portfolio provides low potential returns and foreign exchange only has a small role to play in the asset allocation of their portfolios.

Arvind Rajan, head of global and macro at asset manager PGIM Fixed Income, said the information ratio – the measure of the risk-adjusted return of an asset – of currencies stands somewhere between 0.1 and 0.3, which is low compared with other asset classes.

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