Portfolio currency hedging 101 – Impacts and costs – What you need to understand
There is a lot of confusion and uncertainty when I discuss portfolio currency hedging with investors. I often meet the expression «hedging cost» and it often refers to the interest rate differentials (long the interbank rate you hedge to and short the interbank rate you hedge from). This is not the real hedge cost, but the hedge impact. The hedge cost is OTC trading costs, credit risk and bid/offer imbalance. Confused already?
«When the oil price tanks eyes turns to the NOKie». We often see the Brent oil price as a factor for explanation of the moves in the Norwegian krone (NOK) versus other currencies, but how does it really work over time? We have been looking closer to this relationship and have some interesting findings. These findings can be split in three levels:
What impacts the Norwegian krone price to the euro and why is the Norwegian krone so weak? These are frequent questions since some time and it is easy to understand why investors ask these questions. The Norwegian economy is going to once again be the outliar with a likely much stronger GDP growth in 2019 compared to the rest of Europe. Norwegian interest rates are positive, yes you read right, and the central bank recently hiked interest rates and upped their interest rate path.
The Nordic capital market was early on putting sustainability and ethical investing high on the agenda. Especially large institutional Swedish investors have been driving the demand and other investors have followed. It is maybe not that surprising that the Nordic region played an important role in introducing green bonds in the global capital market.
Investments in funds are always related to risk. Past performance is no guarantee of future results. Performances are calculated net of fees. Investments in funds are subject to market fluctuation and risks inherent in investing in securities. The value of investments and the revenue they generate can increase or decrease and it is possible that investors will not recover their initial investment.