Hedging against currency swings separates winners from losers this year, says The Wall Street Journal

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According to a recent article in The Wall Street Journal, currency hedging is making all the difference in international stock funds this year. Moreover, currency fluctuations can wipe out positive performance in international stock funds. Deep tech company 21strategies offers currency hedging based on third-wave artificial intelligence. This distinguishes 21strategies from other technologies. This is because artificial intelligence can be used to optimize decisions under uncertainty and determine advantageous tactics. This sets 21strategies' AI technology apart from technologies that predominantly use machine learning for classification and clustering.

A recent article in The Wall Street Journal examines the performance of various stock funds. It shows that performance is mainly driven by two variables: company performance and exchange rate fluctuations. The author gets even more specific: Performance is even partially outweighed by exchange rate fluctuations. Why is this the case? In dynamic times, the complexity of investing increases. It is no longer just key figures such as company profits and share price valuations that are important, but also the development of currencies. This brings another risk into play, that of the foreign exchange market. According to The Wall Street Journal, iShares ETF, for example, invested in by U.S. traders and focused on eurozone stocks without currency hedging, is down 26 percent this year. Whereas its counterpart that includes currency hedging saw a smaller loss, down just 15 percent. The differences are even more pronounced iShares MSCI Japan ETF. Shares of the non-currency-hedged version plunged nearly 25 percent. By comparison, shares of the iShares Currency Hedged MSCI Japan are down just 1.3 percent.

21strategies' AI-based technology can determine optimized hedging strategies for financial market risks such as currency, interest rate and commodity price risks - and it can determine such strategies under uncertainty. The technology can thus be used in the field of international trade, supply chain and for the foreign exchange market. On the one hand, company-specific requirements are taken into account. These are combined with macroeconomic conditions. The current interest rate policies of central banks, inflation rates and GDP growth are taken into account when deriving an optimal hedging strategy. Based on this, 21strategies' AI technology determines optimized decisions under uncertainty. It does this based on real-time data. This allows hedging strategies to be adjusted and determined based on the optimal conditions of the given day. Increasing diversification and international sourcing also make commodity price hedging necessary. Commodity price changes can play a significant role here. Geopolitical measures, such as tariffs and sanctions, or price changes of related products are incorporated into the determination of optimal hedging recommendations.

With third-wave artificial intelligence, 21strategies provides optimized hedging strategies under uncertainty.

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References:

Langley, Karen (2022). Hedging Against Currency Swings Separates Winners From Losers This Year. In: The Wall Street Journal, New York City. https://www.wsj.com/articles/hedging-against-currency-swings-separates-winners-from-losers-this-year-11667732554 (06. November 2022).

Author: Tanja Zimmermann