- Currency movement has the potential to significantly impact the net returns of an international equity exposure, for better or worse.
- Currency strength and weakness can vary over short, mid, and long terms, making it difficult to determine the direction foreign currencies may take.
- Near-zero correlation has been observed between foreign currency movement and foreign equity movement, making it difficult to replicate the same view across equities and currencies.1
- There are pros and cons for both including and excluding currency exposure.
- A neutral level of 50% exposure to currencies can be an efficient way to implement a low-cost, passive exposure to international developed market equities, providing some supplemental performance benefits by incorporating currencies while lowering potential negative impacts.
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