Global currency funds posted losses in January amid volatile markets, according to the latest Parker FX Index report.
Funds in the index reported an aggregate loss of 1.01% for January with 42 out of the 62 funds incurring losses. The performance for the month ranged from a high of 4.19% to a low of -9.17%, says Parker Global Strategies, which does not disclose the names of the funds. The median return for the month was -0.83%.
Parker also has two style driven sub-indices: the Parker Systematic Index, which tracks those managers whose decision process is based on computer models, or systematic trading, and the Parker Discretionary Index, which tracks managers whose decision process is judgmental. During January, the Systematic Index declined 1.93% return while the Discretionary Index dropped 0.09%.
Currency markets were volatile during the month, the result of the ongoing sovereign debt crisis in Europe, questionable US fiscal policy, the threat of inflation in emerging markets, and political instability in Egypt and Tunisia.
The fiscal crisis in Europe was further complicated following the ECB’s policy statement in early January, which referenced short-term price pressures in the Eurozone. Anticipating imminent interest rate hikes, the euro rallied over 6%. The credit rating downgrades of both Portugal and Ireland led to a sell off of the euro in the final two weeks of the month. Selling pressure was further amplified after Moody’s placed Greece and Belgium on review for possible downgrades.
The British pound gained 2.5% versus the US dollar for the month. During the first half of January, the pound reached the strongest level against the euro in over four months as investors bet that the UK economy was in better shape than the Eurozone nations. In the second half of the month the pound declined 0.8% relative to the US dollar following the news of larger than expected UK CPI figures: inflation hit an 8-month high of +3.7% in December and economists expect it will stay well above +3% through 2011.
Commodity currencies were the worst performers for the month, as commodities, namely precious metals, fell the most in six months. The currencies of the largest gold exporters, including Australia, Canada and South Africa, declined 2.4%, 0.3% and 7.7%, respectively.
The Parker FX Index is a performance-based benchmark that measures both the reported and the risk adjusted returns of global currency managers. The 301 month compounded annual return since inception in January 1986 through January 2011 is up 11.60% on a reported basis and up 3.11% on a risk adjusted basis.