FTSE Group and Record Currency Management have launched the first set of indices within the new FTSE Currency Forward Rate Bias Index Series.
The new FRB5 indices use the five most widely-traded currencies (US Dollar, Euro, Japanese Yen, Pound Sterling and Swiss Franc) in a forward rate bias (also referred to as carry) strategy.
Forward rate bias is the observed tendency of higher interest rate currencies to outperform lower interest rate currencies. This outperformance is captured through a series of rolling one-month forward contracts, equally-weighted across all ten currency pairs.
Research from Record shows that FRB provides a fundamental and sustainable return stream that rewards the risks associated with holding higher interest rate currencies. With a low long-term correlation to other asset classes such as equities and bonds, the indices allow investors access to a pure source of alternative beta in currency markets.
Neil Record, chairman and chief executive of Record, says: “The FTSE Currency FRB Index Series will enable investors to develop new diversification strategies as the series returns show low correlations with established asset classes such as equities and bonds. Taken together with the scalability inherent in the currency markets, and the universe of investable managers, this should help the investment community recognise the currency forward rate bias as an alternative beta.”
Imogen Dillon Hatcher, executive director of global sales at FTSE, says: “The foreign exchange market is the largest market in the investment world, with USD3trn traded daily, allowing for both retail and wholesale investment. FTSE is committed to offering investors a complete suite of index products to measure and analyse all facets of the investment landscape. The FTSE Currency FRB Index Series will allow clients to access the currency market and has been created in response to market demand.”
The new indices will be calculated on a fully-investable basis and published daily by FTSE (both excess return and total return) and are the first in a range of currency indices that FTSE and Record will work together on. These indices can be used for portfolio construction, index-tracking management, including within financial products such as ETFs and benchmarking active currency strategies.
