Currency Hedge Funds – A Volatile Choice for Some?

Whenever I scan the financial news for items of interest, I understandably focus more on currency and foreign exchange (Forex) updates. So, when I saw a piece yesterday on the Dow Jones Newswire proclaiming how volatility has been affecting returns in currency hedge funds, it caught my attention.

The reporter said that Forex hedge funds posted their biggest loss since August of 2005. She further said that 83 percent of currency funds reported negative returns in May. In fact, the losses detailed in this story covered 60 currency funds with the biggest loss last month, a significant 12.64 percent.

This was a staggering number to me as someone who invests in the Forex market and is an investor looking for alternative ways to make money. Hedge funds have always been touted as the hot way to make more significant returns than, say, mutual funds or an index fund. But this data made me question the hedge fund model. If you are assessing currency hedge funds as a potential alternative investment option, there are a few things you should consider before you dive in. First, the price of participation is not insignificant. Most hedge funds have steep account minimums, typically over $100K just to get in. You should also be aware that these funds are often not exclusively invested in currency – some are also invested in stocks, which negates their true “alternative” nature. There are other limitations too. Factor in withdrawal restrictions and the fact you cannot direct/control your actual allocation and you are pretty much at the mercy of the portfolio manager or trader calling the shots.

I’ve been talking to investors around the world about the viability of the currency markets as an alternative investment class. Investors everywhere are looking for new ways to take advantage of this growing market and are ready to diversify. When you compare the performance of the Currensee Trade Leaders program to the performance reported in over the same timeframe by Dow Jones, you’ll see that, while the hedge funds were struggling to stay alive, the Trade Leaders program delivered consistent returns for investors. Don’t forget your performance may vary from Trade Leader performance and past performance is no indication of future results.

Bottom line, hedge funds often come with a halo of higher performance versus other types of investments. It’s not always the case, so be sure you are careful before investing. Also, consider other types of currency-investing programs (shameless plug for Currensee Trade Leaders program), which deliver proven performance and a unique way to invest in the currency market.

Ultimately, as the major markets continue to change, smart investors focus on new ways to mitigate their risk and maximize their performance. If your currency hedge fund is losing double digits, maybe diversifying into a currency investing program is a wiser path.

*Figures are based on average cumulative monthly performance of Currensee Trade Leaders during the period ending May 31, 2011.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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