Active currency management around a currency benchmark means the fund has given either the asset manager or a professional currency overlay manager the mandate to “trade” the currency around the currency hedging benchmark for the explicit purpose of adding alpha to the total return of the portfolio.
With active currency management, the emphasis should be on flexibility, both in terms of the availability of financial instruments one can use to add alpha and also in terms of the currency hedging benchmark. On the first of these, an active currency manager should have access to a broad spectrum of currency instruments in order to boost their chance of adding value. Similarly, their ability to add value is significantly increased by the adoption of a 50% or symmetrical currency hedging benchmark rather than by a 100% hedged or 100% unhedged benchmark.