He joined the company in July 2005, having spent five years with Bank of Ireland — first as a senior investment adviser in the insurance and investments division, then in the area of client management in private banking.
Friends First, a subsidiary of Eureko, the privately owned Dutch financial services giant, has more than €4.4 billion of assets under management. The Insight Currency Fund, which is managed by Alder Capital, the Dublin-based currency manager, accounts for €16.5m of clients’ funds.
Investment philosophy
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The fund aims to inject diversification into investors’ portfolios. “Until Friends First launched the fund in March 2001, most investors in Ireland really only had four main asset classes to choose from: property, cash, bonds and equities,” said Finucane. “This brings a fifth element — investing in currency fund management — to those seeking to build up a portfolio.”
Finucane notes that there is very little correlation between currency movements and those of other assets. “We compared the performance of a typical managed fund to a portfolio with 75% in a typical managed fund and 25% in the Insight Currency Fund from March 2001 to the end of Dec 2005 and found that the latter outperformed by more than 6% and showed lower volatility.”
Alder Capital uses medium- to long-term trends to forecast movements in the three most liquid currency crosses in the world: euro/dollar, euro/yen and dollar/yen. It does not look at fundamental factors, such as economic conditions. “Alder uses its own proprietary volatility forecasting system, called Calm, to control the risk of its investment portfolios,” said Finucane.
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Performance
The Insight Currency Fund delivered a 10.7% return last year, bringing the cumulative return since its inception to 47.3%. “The average of balanced funds has only delivered 16.1% over the same period,” he said.
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Buying and selling
The fund had done well by backing the euro’s strong gains against the dollar at the end of 2004, but it lost 9% in January 2005 as that trend was reversed. It subsequently staged a recovery, driven partly by weakness in the yen against the euro and the dollar.
Low interest rates in Japan drove investors to seek higher yields in assets denominated in other currencies, which caused strong selling of the yen and buying of other currencies, he said.
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Outlook
Finucane said there was potential for the euro to do well versus the dollar this year. This is based on signs of life in the eurozone economy and expectations that the ECB will continue to increase interest rates.
With the Japanese economy also on the up, there is potential for interest rates to rise and slow capital outflow, precipitating a strengthening of the yen.
Joe Brennan