It aims to produce 4 per cent a year above cash by buying and selling currency forward contracts, futures and options using a computer-driven quant model to find the best investment opportunities in currency markets.
Currency forward contracts are between two parties to buy or sell currencies but are not traded on exchanges. Quant models are computer programs that use mathematical and statistical data to identify market trends.
Swip says in backtesting over 20 years, its currency quant model comfortably beats cash returns and will give a signal when trends are starting to change. Investment director of currencies and manager of the fund Roddy Macpherson says some models are based on currency forward prices or exclude interest rate volatility, which can lead to false signals.
Cash is not yielding much but managing currency exposure will allow Swip to generate additional returns as currencies will have different yields.
Managing currency exposure does not mean the fund will use carry trades, where fund managers buy the highest yielding currencies and sell the lowest-yielding currencies. There may be times when Swip’s model will sell high-yield currencies and buy low-yield currencies.
Macpherson says: “If a fund of funds or discretionary manager invests in different assets, our currency fund can offer a negative correlation to traditional assets such as equities and bonds. There seems to be a shortage of decentperforming currency funds and there is some definite interest in this fund.”