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Forex Portfolio for January 2011
Forex Portfolio for January 2011
Forex Portfolio for January 2011
Forex Portfolio for January 2011
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Forex Portfolio for January 2011

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The Forex Portfolio remains firmly negative towards the USD and to a lesser extent towards the EUR. Both net short positions have not changed much in December, but the model has also turned quite …

The Forex Portfolio remains firmly negative towards the USD and to a lesser extent towards the EUR. Both net short positions have not changed much in December, but the model has also turned quite bearish on the GBP

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  1. January 3, 2011David KarsbølChief Economistdka@saxobank.com+45 3977 4330 Forex Portfolio for January 2011  The model is rebalanced monthly on the first Danish business day 12 CET.  The model returned 1.43%* in December; primarily through heavy long exposure to EURUSD.  The model remains bearish on USD and EUR, but has also turned bearish on GBP.  The model has returned 9.02% YTD*.  The annualised return since inception is 7.75%*. Allocation in January The Forex Portfolio remains firmly negative towards the USD and to a lesser extent towards the EUR. Both net short positions have not changed much in December, but the model has also turned quite bearish on the GBP. The biggest long positions in EUR are against the US dollar, the Norwegian krone, and the Aussie. However, the EURUSD long position has been toned down further in December. The Swedish krona is still the most preferred currency against the EUR, but the long exposure has been reduced. The CHF is also still preferred versus the EUR, but it too sees a reduction in its exposure. The EURNZD sees the biggest change to a sizable short position. EUR-denominated account USD-denominated account GBP-denominated account EUR 1 million USD 1 million GBP 1 million EURAUD 165,636 AUDUSD -162,390 GBPAUD 165,636 EURGBP -33,476 GBPUSD 21,602 GBPUSD 280,735 EURUSD 280,735 USDCAD 45,940 GBPCAD 45,940 EURCAD 45,940 USDCHF -294,241 GBPCHF -294,241 EURCHF -294,241 USDJPY 18,234 GBPJPY 18,234 EURJPY 18,234 USDNOK 166,193 GBPNOK 166,193 EURNOK 166,193 USDSEK -327,146 GBPSEK -327,146 EURSEK -327,146 EURUSD -160,186 EURGBP -248,221 EURNZD -235,088 NZDUSD 302,417 NZDGBP 468,624 The suggested allocations above are based on an account size of EUR/USD/GBP 1,000,000. A spreadsheet for calculating allocations for custom-sized accounts can be found under Forex Portfolio Model Allocation at www.tradingfloor.com/fx-equity-research
  2. January 31, 2011 The Saxo Bank Forex Portfolio ModelForex Portfolio: The model was backtested from October 1991 to September 2008 during which period it yielded 106.9% or 0.36% per month before costs in the EUR-denominated account*.Realized Returns From October 2008 to September 2009 the model was further backtested on „out-of-Month Return (%) sample‟ data to further validate its performance. The model was launched in October 1, 2009.2009 October 0.322009 November 0.68 Saxo Bank Forex Portfolio Model: Realised Results* (Oct. 2009 - ) Accumulated capital2009 December -0.31 from investing EUR 1 ultimo September 20092010 January -0.41 1.42010 February 2.10 1.32010 March 0.17 1.22010 April 0.59 1.12010 May 0.96 1.02010 June 3.60 0.92010 July -1.62 0.8 12/09 06/10 09/09 03/10 09/10 12/102010 August 3.382010 September -0.80 Single Leverage (7.75% p.a.) Double Leverage (15.76% p.a.) Triple Leverage (24.03% p.a.)2010 October 0.492010 November -1.06 Saxo Bank Forex Portfolio Model: Backtesting Results* (Oct. 1991 - Sep. 2008)2010 December 1.43 Accumulated capital from investing EUR 1YTD 9.02 15.0Since inception 9.77 12.5Since inception 7.75(annualized) 10.0 7.5 5.0 2.5 0.0 1991 1996 1997 1998 2003 2004 2005 1992 1993 1994 1995 1999 2000 2001 2002 2006 2007 2008 2009 Single Leverage (4.67%) p.a. Double Leverage (9.21%) p.a. Triple Leverage (13.59%) p.a. Saxo Bank Forex Portfolio Model - Monthly returns in backtesting* (%, Oct. 1991 - Sep. Obs. 2008) 35 30 25 20 15 10 5 0 0.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 10.0 -10.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 -9.5 -9.0 -8.5 -8.0 -7.5 -7.0 -6.5 -6.0 -5.5 -5.0 -4.5 -4.0 *Past performance disclaimer This publication refers to past performance. Past performance is not a reliable indicator of future performance. Indications of past performance displayed on this publication will not necessarily be repeated in the future. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past or that significant losses will be avoided. Statements contained on this publication that are not historical facts and which may be simulated past performance or future performance data are based on current expectations, estimates, projections, opinions and beliefs of the Saxo Bank Group. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this publication may contain forward-looking statements. Actual events or results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. The model input The model‟s inputs are individual country indicators, which measure the underlying economic strength (contraction or expansion) of the following 10 currencies: NZD, AUD, 2
  3. January 31, 2011CAD, JPY, EUR, GBP, USD, CHF, SEK, and NOK. The country indicators, which aredesigned to reflect the macroeconomic strength of each economy, are based on 22individual economic time series for each country.The allocation signals are generated by changes in spreads between the fundamentalcountry indicators. More capital is allocated to currencies with relatively strong economicactivity (and positive rate outlook), funded by short positions on currencies with weakeconomic activity (weak rate outlook). For example, if the Eurozone fundamental countryindex suddenly drops (increases) relative to the US fundamental index, the model, allelse being equal, would reduce (increase) exposure to EURUSD. Additionally, positionsare scaled up or down according to the volatility of the currency crosses in question sothe expected risk-adjusted return for positions in EURCHF is the same as for positions inthe normally more volatile EURCAD.Allocations are presented as net exposures against EUR, USD, or GBP to reduce both thenumber of possible combinations and most illiquid crosses.Returns are based on Bloomberg monthly carry-adjusted currency data. The modeltherefore does not include costs related to minimum trading size, slippage, rollover,spreads, and taxes.Allocation updateThe model will be published on www.tradingfloor.com by Saxo Bank on the first bankingday of the calendar month. While Saxo Bank publishes the model‟s suggested allocation,the bank is not responsible for the monthly reweighting of the portfolio.For a EUR-denominated account, the sum of all EUR positions following the model willdeviate from the amount allocated to follow the model. For example, the holder of a EUR1 million account might choose to allocate EUR 1 million to follow the model, but the sumof EUR exposure will not equal EUR 1 million. The reason is that one needs to look at thenet exposures. If the model is long 100,000 EURUSD and short 100,000 EURJPY, the netexposure in EUR on these two positions is actually zero. The sum of total position sizes inEUR might therefore deviate from EUR 1 million, since the model is only looking at netexposures of the currencies in question. The reason is that the model follows 10currencies, but the net exposures are established via only nine crosses. The sum of allthese exposures is then either net long or short, depending on the model‟s prediction onEUR itself.Attractive featuresThe model is always well diversified and is always in the market. It is therefore notexposed to “timing issues”. It does not use stops, since the overall volatility of returnstends to be low (especially on single leverage). One particularly interesting feature isthat returns tend to be almost completely uncorrelated to returns in stock markets(correlation = 0.10) and other risky asset classes (correlation to the CRB Index is 0.11).Therefore, if the backtesting since 1991 is indicative of future returns*, it would make alot of sense to use part of one‟s portfolio to allocate to the FX Model and therebydecreasing overall portfolio volatility without lowering returns too much (depends on theleverage used) or at all.*Past performance disclaimerThis publication refers to past performance. Past performance is not a reliable indicator of future performance. Indications of past performancedisplayed on this publication will not necessarily be repeated in the future. No representation is being made that any investment will or islikely to achieve profits or losses similar to those achieved in the past or that significant losses will be avoided.Statements contained on this publication that are not historical facts and which may be simulated past performance or future performancedata are based on current expectations, estimates, projections, opinions and beliefs of the Saxo Bank Group. Such statements involve knownand unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this publication maycontain forward-looking statements. Actual events or results or actual performance may differ materially from those reflected orcontemplated in such forward-looking statements. 3
  4. January 31, 2011For more trading commentary on forex, equities, and commodities go to www.tradingfloor.com or www.saxobank.comNON-INDEPENDENT INVESTMENT RESEARCHThis investment research has not been prepared in accordance with legal requirements designed to promote the independence of investmentresearch. Further it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Saxo Bank, its affiliates orstaff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (includingderivatives), of any issuer mentioned herein.None of the information contained herein constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financialinstrument, to make any investment, or to participate in any particular trading strategy. This material is produced for marketing and/orinformational purposes only and Saxo Bank A/S and its owners, subsidiaries and affiliates whether acting directly or through branch offices(“Saxo Bank”) make no representation or warranty, and assume no liability, for the accuracy or completeness of the information provided herein.In providing this material Saxo Bank has not taken into account any particular recipient‟s investment objectives, special investment goals,financial situation, and specific needs and demands and nothing herein is intended as a recommendation for any recipient to invest or divest in aparticular manner and Saxo Bank assumes no liability for any recipient sustaining a loss from trading in accordance with a perceivedrecommendation. All investments entail a risk and may result in both profits and losses. In particular investments in leveraged products, such asbut not limited to foreign exchange, derivates and commodities can be very speculative and profits and losses may fluctuate both violently andrapidly. Speculative trading is not suitable for all investors and all recipients should carefully consider their financial situation and consult financialadvisor(s) in order to understand the risks involved and ensure the suitability of their situation prior to making any investment, divestment orentering into any transaction. Any mentioning herein, if any, of any risk may not be, and should not be considered to be, neither acomprehensive disclosure or risks nor a comprehensive description such risks. Any expression of opinion may be personal to the author and maynot reflect the opinion of Saxo Bank and all expressions of opinion are subject to change without notice (neither prior nor subsequent).This publication refers to past performance. Past performance is not a reliable indicator of future performance. Indications of past performancedisplayed on this publication will not necessarily be repeated in the future. No representation is being made that any invest ment will or is likely toachieve profits or losses similar to those achieved in the past, or that significant losses will be avoided.Statements contained on this publication that are not historical facts and which may be simulated past performance or future performancedata are based on current expectations, estimates, projections, opinions and beliefs of the Saxo Bank Group. Such statements involve known andunknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this publication may containforward-looking statements. Actual events or results or actual performance may differ materially from those reflected or contemplated in suchforward-looking statements.This material is confidential and should not be copied, distributed, published or reproduced in whole or in part or disclosed by recipients to anyother person.Any information or opinions in this material are not intended for distribution to, or use by, any person in any jurisdiction or country where suchdistribution or use would be unlawful. The information in this document is not directed at or intended for “US Persons” within the meaning of theUnited States Securities Act of 1993, as amended and the United States Securities Exchange Act of 1934, as amended.This disclaimer is subject to Saxo Banks Full Disclaimer available at www.saxobank.com/disclaimer.Risk Warnings FXTrade Currency and Price CurrencyWhen an investor trades in the Forex market, they always trade a combination of two currencies (a cross or currency pair) in which one currencyis bought (long) and the other is sold (short). This means the investor is speculating on the prospect of one of the currencies appreciating invalue in relation to the other.Forex Margin TradingMargin trading allows investors to buy and sell assets that have a greater value than the capital in their account. Forex trading is typicallyexecuted on margin accounts, and the industry practice is to trade on relatively small margin amounts since currency exchange rate fluctuationstend to be less than one or two percent on any given day.Margin trading does involve a certain amount of risk. Since a position is being held that exceeds the actual value of the account, a trader couldincur substantial losses if the market moves against his position. Thus, margin trading requires close monitoring of margin utilization, i.e. theamount of collateral being used to hold margined positions.If margin utilization exceeds collateral available for margin trading, positions must be closed, reduced, or additional funds must be posted tocover the position.SupervisionThe Saxo Bank Group is under the supervision of the Danish Financial Supervisory Authority (In Danish: "Finanstilsynet") and is subject to theDanish Executive Order on Good Business Practice for Financial Undertakings.Saxo Bank A/SPhilip Heymans Allé 152900 HellerupDenmarkPhone: +45 39 77 40 00Reg. No. 1149CVR. No. 15731249 4

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