e-fundresearch.com: What are your personal lessons learned from 2015 market developments?
Paul Lambert: The currency market remains the most liquid environment in which to transact. However, 2015 was the year where it became clear that even currency was no longer immune from large gaps in pricing. January was a chastening month for many, when the Swiss franc moved more in a two-hour period than any G7 currency before it. However, the sharp moves in the Swiss franc had little impact on the performance of our currency strategy, a testament to our approach in screening, selecting and monitoring positions. Since then, there have been many more examples of extreme volatility in other currency pairs. We have always run our strategy with a commitment to diversification, strong risk management and a preference for uncrowded and liquid positions. For us, 2015 was the year that reinforced the real value of this commitment.
e-fundresearch.com: How would you describe your investment strategy in one sentence?
Paul Lambert: Insight’s absolute return currency strategy seeks to generate positive risk-adjusted returns at low levels of volatility in all market conditions, investing on a “best ideas“ approach, both long and short, across a wide range of currencies.
e-fundresearch.com: To what extent has your strategy been able to benefit from last year's market environment and which particular investment themes have delivered the strongest performance contribution?
Paul Lambert: 2015 was characterised by extreme levels of volatility. Traditional asset classes typically become highly correlated in such conditions, making diversation at the portfolio level difficult to achieve. Currency as an asset class has exhibited low correlations to more traditional asset classes, making it an excellent source of potential diversification within a wider portfolio, especially when volatility is rising or other asset classes are struggling. Futhermore, our currency strategy has the potential to perform particularly well in more volatile market conditions when liquidity in other asset classes is limited, and in markets where managers are able to identify and take advantage of clear trends and factors underpinning moves in currency markets. In 2015, clear trends did emerge, namely the divergence in monetary policy between the US and much of the rest of the world, worries about slowing growth in emerging market economies and a slide in oil and commodity prices.
e-fundresearch.com: With regards to the new year: How optimistic is your view into the future and what obstacles and challenges will your strategy need to overcome in 2016?
Paul Lambert: The global economic backdrop is evolving. There will be many factors to watch for in 2016 to help shape expectations, particularly economic data from global powerhouses such as the US and China. The fortunes of emerging market and commodity-linked currencies will remain closely tied to the outlook for China and developments in commodity markets. The unpredictability of China’s foreign exchange policy and uncertainty over the yuan’s course of direction will also likely exert its influence on other Asian currencies in 2016. We are also cognisant of the risks that could arise from policy missteps.
e-fundresearch.com: How would rising interest rates affect your strategy?
Paul Lambert: Currency values are largely driven by changes in interest rate cycles and, as such, monetary policy divergence between the US and much of the rest of the world will likely remain a key driver of currency markets in 2016. The Federal Reserve has just embarked on a tightening campaign at a time the monetary dial remains set to easy in the eurozone and Japan.
e-fundresearch.com: Why should investors consider an increase in allocation to your strategy in 2016?
Paul Lambert: Currency is a global asset class. It requires a nimble and flexible investment approach that is able to respond to rapidly changing market conditions. The stratgey is managed by an experienced team with an excellent long-term track record and supported by investment professionals across Insight’s fixed income division. The teams collaberate closely through all stages of the investment making decision, from idea generation through to the implementation and active monitoring of positions. The managers use a range of proprietary and third-party quantitative tools to help them determine how and when to open, close or modify a position, always operating within a robust risk framework.
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