Morningstar Magazine - April/May 2015 - 45

to growth. We have seen that in Japan,
and we are bound to see this in Europe as well.
When you bet on weakening your currency
as a means to kick-start the economy, you export
your deflationary pressure. You are not creating
global growth. You are just displacing it.
Is currency risk the biggest concern for you
when investing outside your home country? If not,
what trumps it?
Paul Johnson, senior portfolio
manager, RBC Global
Asset Management, Canada

Johnson: A stock's fundamental outlook trumps
currency risk for us. Currency moves are
very difficult to predict compared with a company's level of profitability. Company management
often employs currency-hedging strategies
as well, which we have no control over. That adds
another layer of complexity.
Habib Subjally, senior portfolio
manager and head of global
equities at RBC Global Asset
Management, U.K.

Subjally: The thing we worry about most is
investing in a company we shouldn't have. We are
very clear about where we want to take risk
and where we don't. We actively try to minimize
the impact of currency on the relative returns
of the portfolio, but we actively seek out stockspecific risk. So, if we make a mistake in deciding
to own a business that then fails, it means that
we haven't generated a positive return for the risk
we have taken. While that is disappointing
and will happen from time to time, we feel the
bigger mistake is not to learn from this. So,
we always take time to examine the mistakes we
make to ensure that they aren't repeated.

We do not claim to be currency experts.
So, the more currencies there are [in the
portfolio], the more we can diversify away this risk
and the less impact any one currency is likely
to have on portfolio returns.
Habib Subjally

currency headwinds for some, notably U.S.
companies with significant overseas operations,
we are observing that some global companies
are benefiting from currency changes. For example,
Japanese automotive companies who export
to the United States are doing well from a weaker
yen. The key thing here is to understand the
currency impact is just one of translating business
results from one currency into another, and
where it impacts margins due to sales and costs
being denominated in different currencies.
In the latter instance, a sustained change in the
currency has the potential to impact a company's
competitive position, for better or worse.
Recent changes have so far not obliged us to
rethink positions, but have tended to confirm the
reasons for owning the companies we do.
Johnson: Multinationals based in the United.
States have hit currency headwinds resulting from
U.S. dollar strength. Multinationals in Europe
are benefiting from the euro's weakness. Based on
this, we favor eurozone-based multinationals over
their U.S. counterparts.
How do you control for currency risk?

Multinationals that conduct business across the globe
have hit currency headwinds recently. Has that caused
you to rethink your positions in such companies?

Dagmara Fijalkowski, senior
portfolio manager, RBC Global
Bond, and head of global fixed
income and currencies, RBC Global
Asset Management, Canada

Subjally: The advantage of maintaining a broad
portfolio of independent companies is that
one is able to diversify across different currencies.
So, although you are right that there have been

Fijalkowski: We control currency risk using
currency forwards. Occasionally, we use currency
options. In both cases, our counterparties have

to meet our credit criteria, positions are
staggered with maturities typically up to three
months, and exposures are monitored daily
to adjust for meaningful market movements.
Additionally, we also monitor for cash-flow risk and
any portfolio distortions that could result in
the wake of large currency gains or losses and
adjust for these.
Subjally: The advantage of managing a global
or international-equity portfolio is that having such
a broad opportunity set increases the number
of currencies. While some might find this daunting,
we welcome it as it enables us to manage overall
risks in the portfolio much more efficiently.
We do not claim to be currency experts. So, the
more currencies there are, the more we can
diversify away this risk and the less impact any
one currency is likely to have on portfolio returns.
Do you hedge your currency risk?
Paul Moroz, deputy chief
investment officer, Mawer
Investment Management, and
portfolio manager, Mawer Global
Equity, Canada

Moroz: Just as we believe investors shouldn't risk
all their wealth in one stock, they shouldn't bet
on one currency either. Canadian investors
are being tested on this point, given the depreciation of the Canadian dollar. In addition, it is
becoming more difficult to hedge companies that
are increasingly global. Most often, companies
generate revenue in multiple currencies, have

global.morningstar.com/Morningstarmagazine

http://global.morningstar.com/Morningstarmagazine

Morningstar Magazine - April/May 2015

Table of Contents for the Digital Edition of Morningstar Magazine - April/May 2015