Merrill Takes Aim At Forex Hedge Funds

Mar 22 2007 | 12:03pm ET

Merrill Lynch has rolled out a foreign-exchange trading methodology that it claims replicates hedge fund strategies at reduced cost.

The ML FX Clone utilizes momentum, carry-trade and U.S. dollar trading strategies. Backtesting data shows an average annual return of 9.1%—in line with the Parker FX Index—and only one year of negative returns since 1989, according to the firm.

“Our replication strategies offer attractive returns and diversification benefits similar to those of broad currency portfolio manager indices,” Merrill head of global forex strategy Alex Patelis said. “However, they are more transparent, have greater liquidity, little manager risk and potentially lower trading and transaction costs.”

Merrill analysts noted in an October 2006 report that as the hedge fund industry matures and more active managers share and compete for available returns, justifying paying higher fees for active management may be increasingly difficult if similar strategies can be mechanically implemented at lower cost.


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