Speaking to InvestorDaily, First Quadrant managing partner Max Darnell said in a typical macro portfolio, currency is always the biggest source of risk – followed closely by fixed interest.
First Quadrant, which is headquartered in Pasadena, California, manages approximately US$23 billion.
The firm's Global Absolute Return Fund is being promoted in Australia by institutional partner Affiliated Managers Group (AMG)
Over half of the fund is devoted solely to currency, Mr Darnell said.
"It’s a fund that’s based on using currency as a macro play in investment markets. We think of currency as being the weather vane for macro phenomena," he said.
The majority of First Quadrant's clients in Australia are institutional entities like superannuation funds, he said.
Institutional investors tend to take one of two approaches to currency, Mr Darnell said: an overlay approach, or an approach based on improving their alternatives allocation.
First Quadrant is not currently running any currency overlays for clients in Australia, but Mr Darnell sees some potential for business in the area.
"But we do have institutional clients using our long/short [strategy] looking for an uncorrelated alternative return stream," he said.
Because it has a low correlation to equity markets, the Global Absolute Return Fund fits well in the alternative section of portfolios, Mr Darnell said. The fund also does well in times of market stress, he added.
"We’re generally in a defensive posture right now – we like the US dollar and we like the yen. But we’re short commodity currencies in general.
"We’re short both New Zealand and Canadian dollar. But we have a spread trade on both of them relative to the Australian dollar. We actually like the Australian dollar, but net/net Australian dollar/New Zealand dollar we’re neutral.
"Currency is ultimately a simpler instrument in terms of the things that we trade, but there’s a mysticism around it in terms of what drives currencies.
"People think: 'You have to know what central banks are going to do next'. The reality is that currency is one of these things that’s really affected by the major and known macro influences in the world," he said.
