Mads Koefoed
Macro Strategist
mkof@saxobank.com+45 3977 4942
Saxo Fundamental FX Portfolio for March 2011
This month the basis of the Saxo Fundamental FX Portfolio model, theproprietary macro strength indicators, have been revised to make themmore comparable across economies. There is also a change to howfunds are allocated in the portfolio model
–
from an absolute value to apercentage allocation, making the portfolio easier to use. Next monththere will be an additional table detailing the changes to the portfolioallocation.
Back-test performance (December 1994
–
February 2011)* EUR USD GBPAverage monthly return (%) 0.36 0.43 0.47Standard deviation of monthly returns (%) 1.16 1.50 1.57Annualised return (%) 4.32 5.15 5.62Annualised standard deviation (%) 4.01 5.19 5.43Max drawdown (%) -8.61 -11.64 -12.21Max drawdown length (months) 26 27 22
Allocation for March 2011
EUR-denominated account USD-denominated account GBP-denominated accountWeight (percent) Weight (percent) Weight (percent)EURAUD 9.22 AUDUSD -9.13 GBPAUD 9.22EURGBP -6.24 GBPUSD 3.85 GBPUSD 36.11EURUSD 36.11 USDCAD 8.05 GBPCAD 8.05EURCAD 8.05 USDCHF -4.90 GBPCHF -4.90EURCHF -4.90 USDJPY -13.54 GBPJPY -13.54EURJPY -13.54 USDNOK 32.54 GBPNOK 32.54EURNOK 32.54 USDSEK -46.44 GBPSEK -46.44EURSEK -46.44 EURUSD 7.93 EURGBP 12.87EURNZD -3.87 NZDUSD 5.23 NZDGBP 8.49EUR-denominated account USD-denominated account GBP-denominated accountNet exposure (percent) Net exposure (percent) Net exposure (percent)85.92 85.92 85.92
Source: Saxo Fundamental FX Portfolio
*Past performance disclaimer
This publication refers to past performance. Past performance is not a reliable indicator of futureperformance. Indications of past performance displayed on this publication will not necessarily berepeated in the future. No representation is being made that any investment will or is likely to achieveprofits or losses similar to those achieved in the past or that significant losses will be avoided.Statements contained on this publication that are not historical facts and which may be simulated pastperformance or future performance data are based on current expectations, estimates, projections,opinions and beliefs of the Saxo Bank Group. Such statements involve known and unknown risks,uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, thispublication may contain 'forward-looking statements'. Actual events or results or actual performancemay differ materially from those reflected or contemplated in such forward-looking statements.
March 02, 2011
2
Saxo Macro Strength Indicators
The Saxo Fundamental FX Portfolio m
odel is based on Saxo Bank’s
macro strength indicators which attempt to capture the ten of the
world’s largest economies’ deviation of trend growth
.
Source: Saxo Bank Strategy & Research
March 02, 2011
3
The portfolio model input
The model’s inputs are
proprietary individual country indicators whichmeasure the underlying economic strength (contraction or expansion)of 10 currencies: NZD, AUD, CAD, JPY, EUR, GBP, USD, CHF, SEK, andNOK. The country indicators, derived from public macroeconomic data,are designed to reflect the macroeconomic strength of each economy.The allocation signals are generated by changes in spreads betweenthe fundamental country indicators. More capital is allocated tocurrencies with relatively strong economic activity (and positive rateoutlook), funded by short positions on currencies with weak economicactivity (weak rate outlook). For example, if the Eurozone fundamentalcountry index suddenly drops (increases) relative to the USfundamental index, the model, all else being equal, would reduce(increase) exposure to EURUSD. Additionally, positions are scaled upor down according to the volatility of the currency crosses in questionso the expected risk-adjusted return for positions in EURCHF is thesame as for positions in the normally more volatile EURCAD.Allocations are presented as net exposures against EUR, USD, or GBPto reduce both the number of possible combinations and most illiquidcrosses.Returns are based on Bloomberg monthly carry-adjusted currencydata. The model therefore does not include costs related to minimumtrading size, slippage, rollover, spreads, and taxes.
Allocation update
The model will be published on www.tradingfloor.com by Saxo Bank onthe first banking day of the calendar month. While Saxo Bank
publishes the model’s suggested allocation,
the bank is not responsiblefor the monthly reweighting of the portfolio.The net exposure of a portfolio does not necessarily equal the nominalportfolio amount. As an example, in a EUR-denominated account thesum of all EUR positions following the model can deviate from theamount allocated to follow the model. Assuming the holder of a EUR 1million account might choose to allocate EUR 1 million to follow themodel, but the sum of EUR exposure will not equal EUR 1 million. Thereason is that one needs to look at the net exposures. If the model islong 100,000 EURUSD and short 100,000 EURJPY, the net exposure inEUR on these two positions is actually zero. The sum of total positionsizes in EUR might therefore deviate from EUR 1 million, since themodel is only looking at net exposures of the currencies in question.The reason is that the model follows 10 currencies, but the netexposures are established via only nine crosses. The sum of all theseexposures is then either net long or short, depending on the m
odel’s
prediction on EUR itself.
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Saxo Fundamental FX Portfolio for March 2011
This month the basis of the Saxo Fundamental FX Portfolio model, the proprietary macro strength indicators, have been revised to make them more comparable across economies. There is also a change to how funds are allocated…
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