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The MSCI Adaptive Hedge Indexes

categories: Indexes, Americas, EMEAI, Portfolio Construction and Optimization, Risk Management, Asia Pacific, Asset Owners, Equities, Currencies, Research Paper, Asset Managers (Quant or Fundamental), DOOLE Stuart, SAURABH Katiyar, KRISHNA Jashu, general

Global equity portfolios expose investors to currency risk. Those wishing to minimize currency effects often hedge that currency exposure without touching their underlying international equity portfolios. However, currency fluctuations may also increase the investment returns and those movements can be sharp. We describe how the MSCI Adaptive Hedge Indexes use versions of four well-known currency indicators – Value, Momentum, Carry, and Volatility – to systematically determine a level of hedging for each currency exposure in the index. We also explain how the input from the four indicators has historically changed in response to volatile market conditions or a more challenging macro environment.

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Adaptive Hedge indexes research paper.pdf