Passive/Active Currency Management

CFA Level III Portfolio Management
#1

Hi All,

I have a silly question but I have consistently being wrong… so I need to understand this to don’t lose easy points
I know that:
No Hedge: long term investment, low liquidity needs, more exposure to equity than FI, less risk adverse.

Hedge: short term investment, high liquidity needs, more exposure to FI than equity, more risk adverse, more volatile market…

So my doubt is… when is passive and when is active approach when no BENCHMARK is provided… I have seen answers saying that No hedge is active and hedge is passive approach, but also I saw that active aproach is to hedge and passive approach to not hedge…

Is there any rules? How I can know?

Thanks a lot.

#2

In general, 100% hedging is passive: no currency exposure. Less than 100% hedging (or more than 100% hedging) is active: you’re choosing to have some currency exposure.

If you’re tracking a benchmark, then active vs. passive is relative to the benchmark. If the benchmark hedges 100%, then we’re in the same situation as above. If the benchmark doesn’t hedge at all, then 0% hedging is passive and any hedging is active.

1 Like
#3

Ok got it!! thanks a lot.