SOURCE: Russell Investments

Russell Investments

May 29, 2013 10:06 ET

Currency Effect: Year-to-Date Returns for the Russell Developed Large Cap Index as of May 22 Demonstrate the Impact Currency Can Play on U.S. Investor Portfolios, Underscore Need for a More Conscious Approach

SEATTLE, WA--(Marketwired - May 29, 2013) -  The strengthening U.S. dollar relative to other major global currencies in 2013 underscores the measurable impact currency can play in realized returns by global multi-asset investors. For the year-to-date as of May 22, the Russell Developed Large Cap Index returned 32.9% in Yen-denominated returns, but just 13.3% in U.S. dollar-denominated terms. Other global currencies show a similar mismatch, with currency-based returns for the British pound, Euro, Swiss franc, Canadian and Australian dollars all outperforming U.S. dollar-based returns for the Index.

"The impact that currency can play within international diversification can be quite significant, as illustrated in Russell Developed Large Cap Index year-to-date returns adjusted for currency exposure," said Ian Toner, director of capital markets research for Russell Investments. "Currency differentials, especially with the mismatches we're seeing year-to-date, can sometimes result in unintended portfolio exposure."

Toner added that currency exposure must be managed very carefully, thoughtfully and intentionally and a better description of currency-related portfolio risks may generally allow investors to better manage that exposure.

Hence, Russell Indexes recently introduced the Russell Conscious Currency® Index (RCCI) Series, which provides investors with transparent, objective and rules-based tools that reflect the performance of common foreign currency market factors (Carry, Value and trend). Taken together as a combined index, the Russell Conscious Currency Index may be used as a benchmark to more accurately describe the behavior of the currency market as a whole. Investors may use this benchmark as a better tool to describe the effect of currency risk in global portfolios. They may also use it to design their investment programs to more effectively manage currency risk, either by seeking to reduce that risk or in finding better approached to use it for diversification or return enhancement.

Russell Developed Europe Index - YTD Total Returns by Currency - As of May 22

  Developed LC 13.3% 21.2% 17.6% 20.0% 15.7% 22.2% 32.9%

Source: Russell Investments.

Please note: Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Russell's publication of the Indexes or Index constituents in no way suggests or implies a representation or opinion by Russell as to the attractiveness of investing in a particular security. Inclusion of a security in an Index is not a promotion, sponsorship or endorsement of a security by Russell and Russell makes no representation, warranty or guarantee with respect to the performance of any security included in a Russell Index. 

Opinions expressed by Mr. Toner reflect market performance and observations as of May 22, 2013 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.