Saxo Fundamental FX Portfolio for March 2011
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Saxo Fundamental FX Portfolio for March 2011

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This month the basis of the Saxo Fundamental FX Portfolio model, the proprietary macro strength indicators, have been revised to make them more comparable across economies. There is also a change to ...

This month the basis of the Saxo Fundamental FX Portfolio model, the proprietary macro strength indicators, have been revised to make them more comparable across economies. There is also a change to how funds are allocated in the portfolio model – from an absolute value to a percentage allocation, making the portfolio easier to use. Next month there will be an additional table detailing the changes to the portfolio allocation.
Back-test performance (December 1994 – February 2011)* EUR USD GBP

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Saxo Fundamental FX Portfolio for March 2011 Saxo Fundamental FX Portfolio for March 2011 Document Transcript

  • Saxo Fundamental FX Portfolio for March 2011Mads Koefoed This month the basis of the Saxo Fundamental FX Portfolio model, theMacro Strategist proprietary macro strength indicators, have been revised to make themmkof@saxobank.com more comparable across economies. There is also a change to how+45 3977 4942 funds are allocated in the portfolio model – from an absolute value to a percentage allocation, making the portfolio easier to use. Next month there will be an additional table detailing the changes to the portfolio allocation. Back-test performance (December 1994 – February 2011)* EUR USD GBP Average monthly return (%) 0.36 0.43 0.47 Standard deviation of monthly returns (%) 1.16 1.50 1.57 Annualised return (%) 4.32 5.15 5.62 Annualised standard deviation (%) 4.01 5.19 5.43 Max drawdown (%) -8.61 -11.64 -12.21 Max drawdown length (months) 26 27 22 Allocation for March 2011 EUR-denominated account USD-denominated account GBP-denominated account Weight (percent) Weight (percent) Weight (percent) EURAUD 9.22 AUDUSD -9.13 GBPAUD 9.22 EURGBP -6.24 GBPUSD 3.85 GBPUSD 36.11 EURUSD 36.11 USDCAD 8.05 GBPCAD 8.05 EURCAD 8.05 USDCHF -4.90 GBPCHF -4.90 EURCHF -4.90 USDJPY -13.54 GBPJPY -13.54 EURJPY -13.54 USDNOK 32.54 GBPNOK 32.54 EURNOK 32.54 USDSEK -46.44 GBPSEK -46.44 EURSEK -46.44 EURUSD 7.93 EURGBP 12.87 EURNZD -3.87 NZDUSD 5.23 NZDGBP 8.49 EUR-denominated account USD-denominated account GBP-denominated account Net exposure (percent) Net exposure (percent) Net exposure (percent) 85.92 85.92 85.92 Source: Saxo Fundamental FX Portfolio *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.
  • March 02, 2011Saxo Macro Strength IndicatorsThe Saxo Fundamental FX Portfolio model is based on Saxo Bank’smacro strength indicators which attempt to capture the ten of theworld’s largest economies’ deviation of trend growth.Source: Saxo Bank Strategy & Research 2
  • March 02, 2011The portfolio model inputThe model’s inputs are proprietary individual country indicators whichmeasure the underlying economic strength (contraction or expansion)of 10 currencies: NZD, AUD, CAD, JPY, EUR, GBP, USD, CHF, SEK, andNOK. The country indicators, derived from public macroeconomic data,are designed to reflect the macroeconomic strength of each economy.The allocation signals are generated by changes in spreads betweenthe fundamental country indicators. More capital is allocated tocurrencies with relatively strong economic activity (and positive rateoutlook), funded by short positions on currencies with weak economicactivity (weak rate outlook). For example, if the Eurozone fundamentalcountry index suddenly drops (increases) relative to the USfundamental index, the model, all else being equal, would reduce(increase) exposure to EURUSD. Additionally, positions are scaled upor down according to the volatility of the currency crosses in questionso the expected risk-adjusted return for positions in EURCHF is thesame as for positions in the normally more volatile EURCAD.Allocations are presented as net exposures against EUR, USD, or GBPto reduce both the number of possible combinations and most illiquidcrosses.Returns are based on Bloomberg monthly carry-adjusted currencydata. The model therefore does not include costs related to minimumtrading size, slippage, rollover, spreads, and taxes.Allocation updateThe model will be published on www.tradingfloor.com by Saxo Bank onthe first banking day of the calendar month. While Saxo Bankpublishes the model’s suggested allocation, the bank is not responsiblefor the monthly reweighting of the portfolio.The net exposure of a portfolio does not necessarily equal the nominalportfolio amount. As an example, in a EUR-denominated account thesum of all EUR positions following the model can deviate from theamount allocated to follow the model. Assuming the holder of a EUR 1million account might choose to allocate EUR 1 million to follow themodel, but the sum of EUR exposure will not equal EUR 1 million. Thereason is that one needs to look at the net exposures. If the model islong 100,000 EURUSD and short 100,000 EURJPY, the net exposure inEUR on these two positions is actually zero. The sum of total positionsizes in EUR might therefore deviate from EUR 1 million, since themodel is only looking at net exposures of the currencies in question.The reason is that the model follows 10 currencies, but the netexposures are established via only nine crosses. The sum of all theseexposures is then either net long or short, depending on the model’sprediction on EUR itself. 3
  • March 02, 2011Attractive featuresThe model is always well diversified and is always in the market. It istherefore not exposed to “timing issues”. It does not use stops, sincethe overall volatility of returns tends to be low (especially on singleleverage). Returns tend to be almost completely uncorrelated toreturns in risky asset classes. So, if the back-testing since December1994 is indicative of future returns*, one might allocate part of one’sportfolio to the FX Model and thereby decrease the overall portfoliovolatility without lowering returns too much (depending on theleverage used) or at all.*Past performance disclaimerThis publication refers to past performance. Past performance is not a reliable indicator of futureperformance. Indications of past performance displayed on this publication will not necessarily berepeated in the future. No representation is being made that any investment 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 simulatedpast performance or future performance data 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 contain forward-looking statements. Actual events or results oractual performance may differ materially from those reflected or contemplated in such forward-looking statements. 4
  • March 02, 2011NON-INDEPENDENT INVESTMENT RESEARCHThis investment research has not been prepared in accordance with legal requirements designed to promote the independence ofinvestment research. Further it is not subject to any prohibition on dealing ahead of the dissemination of investment research.Saxo Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise beinterested in the investments (including derivatives), 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 orfinancial instrument, to make any investment, or to participate in any particular trading strategy. This material is produced formarketing and/or informational purposes only and Saxo Bank A/S and its owners, subsidiaries and affiliates whether acting directlyor through branch offices (“Saxo Bank”) make no representation or warranty, and assume no liability, for the accuracy orcompleteness of the information provided herein. In providing this material Saxo Bank has not taken into account any particularrecipient’s investment objectives, special investment goals, financial situation, and specific needs and demands and nothing hereinis intended as a recommendation for any recipient to invest or divest in a particular manner and Saxo Bank assumes no liability forany recipient sustaining a loss from trading in accordance with a perceived recommendation. All investments entail a risk and mayresult in both profits and losses. In particular investments in leveraged products, such as but not limited to foreign exchange,derivates and commodities can be very speculative and profits and losses may fluctuate both violently and rapidly. Speculativetrading 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 or entering into any transaction. Any mentioning herein, if any, of any risk may not be, and should not be consideredto be, neither a comprehensive disclosure or risks nor a comprehensive description such risks. Any expression of opinion may bepersonal to the author and may not reflect the opinion of Saxo Bank and all expressions of opinion are subject to change withoutnotice (neither prior nor subsequent).This publication refers to past performance. Past performance is not a reliable indicator of future performance. Indications of pastperformance displayed on this publication will not necessarily be repeated in the future. No representation is being made that anyinvestment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will beavoided.Statements contained on this publication that are not historical facts and which may be simulated past performance or futureperformance data are based on current expectations, estimates, projections, opinions and beliefs of the Saxo Bank Group. Suchstatements 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 differmaterially from those reflected or contemplated in such forward-looking statements.This material is confidential and should not be copied, distributed, published or reproduced in whole or in part or disclosed byrecipients to any other person.Any information or opinions in this material are not intended for distribution to, or use by, any person in any jurisdiction or countrywhere such distribution or use would be unlawful. The information in this document is not directed at or intended for “US Persons”within the meaning of the United States Securities Act of 1993, as amended and the United States Securities Exchange Act of1934, 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 whichone currency is bought (long) and the other is sold (short). This means the investor is speculating on the prospect of one of thecurrencies appreciating in value 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 istypically executed on margin accounts, and the industry practice is to trade on relatively small margin amounts since currencyexchange rate fluctuations tend 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, atrader could incur substantial losses if the market moves against his position. Thus, margin trading requires close monitoring ofmargin utilization, i.e. the amount 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 beposted to cover the position.SupervisionThe Saxo Bank Group is under the supervision of the Danish Financial Supervisory Authority (In Danish: "Finanstilsynet") and issubject to the Danish 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 5