As a result, opportunities for managers continue to grow. For example, Barclays Global Investors, San Francisco, is a finalist in 30 currency searches, and has won 27 global currency mandates this year, said Rick Arney, senior currency strategist.
Among other managers, Bridgewater Associates Inc., Westport, Conn., reports it is a finalist in as many as 10 searches; A.G. Bisset & Co. Inc., Rowayton, Conn., also is in 10 searches; and JPMorgan Asset Management, New York, has made it as a finalist in five searches.
But investors have to do their homework.
Systematic managers, who take a "rule-based or model-driven" approach to currency management, have experienced the worst performance hits, said Virginia Reynolds Parker, founder and chief investment officer of Parker Global Strategies. Currency strategies managed by systematic firms are down 0.8% as of July 31, she said. By contrast, discretionary managers, a group whose decision-making process is more judgmental, is up 0.43% so far this year.
Systematic managers generally are "momentum-based managers," taking a position once a trend has been established, and can get hurt when the trend reverses course, she said.
About 90% of the systematic managers Parker follows take a technical approach to currency management. Most currency investment firms consider themselves to be fundamental, technical, quantitative or somewhere in between.
Regardless of approach, all managers are facing economic volatility that makes it difficult to outperform. That volatility includes fluctuations in U.S. interest rates, as well as ebbs and flows in the U.S. dollar against other currencies, Ms. Parker said.
FX Concepts Inc., New York, uses technical and quantitative forecasting models in its currency overlay and absolute-return strategies, said John Taylor, chief investment officer. The firm's developed markets currency program, which is part of the absolute return strategy, is down 2.99% so far this year, according to the firm's website. It lost 1.59% in 2004, but produced a net return of 22.96% in 2003.
"One of the things about the foreign exchange business is it's not something you can count on making six basis points above the eurodollar rate every month," Mr. Taylor said. "You can make quite a bit of money during a certain period and go through a year and a half of sliding around."
By contrast, FX Concepts' global currency program has generated an estimated net return of 2.22% so far this year, vs. a 1.76% decline in 2004. Its currency overlay strategy is down 0.39% in 2005, compared with a 0.18% gain in 2004. FX managed $12.3 billion in total currency assets as of Sept. 1, up about $1 billion from a year earlier.
Still, any lag in performance is not reflected in assets under management.