Managed Funds US Fund Distribution

Some people regard hedging as "betting", while others consider it to be "insuring" or managing risks. A lot of people don't like to pay premiums for insurance because the likelihood of a claim is small - but some of us will pay because we want protection against that one unexpected negative event.

Some people consider buying / selling shares to be a form of betting, while others consider the same to be a form of investments. So, it is really where you come from. As someone who worked in the financial markets and hedged interest rate, currency and commodity price risks for corporations, I viewed hedging to be an essential form of risk management.

Some companies don't hedge because they think it is a waste of money, while others will have a robust hedging policy in place for various price or rate risks. For example, most US airlines did not hedge their fuel prices in the 90s then the Iraqi war happened and oil prices hit the roof (well it has hit the sky now) and many went into chapter 11. There will always be debates whether a company should or should not hedge - the benefits or costs of such actions are always seen in hindsight.

I am not advocating whether NI should or should not hedge the currency risks of its American Fund. What I would like to see is that NI has taken this into account in their risk management and that there is a policy in place as to how this risk should be controlled or mitigated. We, as investors, will then able to judge their performance based on this. Leaving it to chance (ie do nothing) can be the worst outcome.

 

I used to hedge portfolios of around $5bn.

Let me say this, 5 yards on the line sounds nice. I like big numbers - Truth and no kidding!

As Alan said above, NI's hedging strategies may not necessarily involved the use of market instruments you described, but some accounting changes (possibly in the way which rates would be used to translate the currencies).

I would like to know how accounting concept works and implement it into my own trading if necessary. - "Creative" accountants know how to "cook the books" and I am not at liberty to reveal their recipes! Only kidding. This question should be addressed directly to NI.

While none of us can predict what the A$ will do, we hope that NI will put in place some robust risk management strategies to minimise the impact of FX and not ignore it while they pursue the trading of the stocks. FX is a risk which must be managed.

Yep!! Risk/money management is the key element to each trading/investing system. - RISK is a four-letter word!

 

"- RISK is a four-letter word!"

"HOPE" is also 4 letter word