Overlay Asset Management, the currency management arm of BNP Paribas, will today launch an innovative fund focusing on volatility in the $3,200bn (£1,958bn, €2,249bn) a day foreign exchange markets.
The fund provides an alternative to traditional directional currency trading at a time when the most common strategy, the carry trade, has suffered from strong correlation with equities and other mainstream asset classes.
The launch of the SingleHedge Currency Option Fund forms part of Overlay’s expansion strategy. The Paris-based company, which has £11.3bn under management, will shortly open a London office.
While volatility trading is relatively commonplace in equity markets it is much less advanced in other asset classes, although Bank of New York Mellon does offer a fund designed to exploit “extreme” market conditions in forex markets.
“While we are not necessarily going to preclude the fund taking directional positions on spot rates, our idea is really to trade currency volatility,” said Elizabeth Para, currency investment strategist. “We expect the fund to display quite low correlation with the market.”
The “highly leveraged” Dublin-domiciled Qualifying Investor Fund, primarily aimed at fund of fund managers who may already have currency exposure, is targeting returns of 20 per cent a year.
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