MontLake Oriel - P/E FX Strategy

The DMS P/E FX Strategy is focused on the most liquid international currency markets (10 DM and 5EM currency pairs). Its systematic investment approach is based on the idea that fundamental macroeconomic forces drive currency exchange rates, and that these forces can be identified and quantified as factors, which are divided into seven main groups: relative short term rates, relative long term rates, relative short-end yield curve, relative long-end yield curve, inflation, capital flows and economic surprise. Given that the relative dominance of each factor varies over time, PE believes that Bayesian statistical analysis can provide a rigorous framework for understanding these markets. Based on stochastic modelling the strategy predicts returns and volatilities for currencies; then, it optimises potential investments based on risk/return trade-offs, and produces target positions. Risk management is integrated into the process and is built around two hard constraints: VaR 12% and  margin-to-equity 10%. Since its UCITS inception the strategy has delivered strong returns to investors (4.5% annualised) with negative correlation to equities (-0.57).