Some international equity managers are wondering whether the drop in the greenback is coming to an end while others are beginning to implement currency hedges to protect their portfolios against a rise in the U.S. dollar.
Even before Federal Reserve Chairman Ben S. Bernanke last week made comments supporting the dollar, some managers were anticipating a rise in the currency, following its 36.5% decline since February 2002.
This is a shift in mentality, said Andy Iseri, investment consultant for global manager research at Callan Associates Inc., San Francisco. Some are starting to question whether the ride is over.
A lot of international equity managers have started implementing some sort of hedging strategy, said John Wasnock, director of manager research at investment consultant Wurts & Associates, Seattle.
Hedging creates the risk of added deviation from an unhedged benchmark, but if these managers are correct, their hedges can protect an institutional investor from the declines in foreign currencies.
AQR Capital Management LLC, Greenwich, Conn.; AllianceBernstein LP, New York; and Baillie Gifford, Edinburgh, Scotland; are among those that consultants say already are implementing hedges or talking about it to clients.
The decrease in the value of the dollar over the past five years has been a windfall for some international equity managers, said David Kabiller, founding principal at AQR. While some of those investors may now be hedging, our approach for a long time has been active management of currencies, he said.
He declined to provide AQR officials' view on the dollar, but various consultants pointed to the firm as an example of a manager preparing for a rise.
The firm has been short on the dollar and its positions are changing, but officials at AQR would not say how. John Meyers, spokesman at AllianceBernstein, could not make an official available for comment, while Roland Cross, spokesman at Baillie Gifford, did not return requests for comment.