Tag: Passive Management

Passive Management

And the Pendulum Swings Back

Institutional investors have long understood the value of diversifying their portfolios, and this usually means investing internationally.

But when they buy foreign equities, they’re actually buying two portfolios, the first being the long equities denominated in their base currency, and the second is that they’re shorting their base currency against the foreign currency they need to purchase the equity.

This presents institutional investors with a choice: they can do nothing and accept the risk of holding this foreign currency, hedge that currency exposure passively or manage it actively.