Investment Objective:

Millennium's active currency overlay strategy focuses on mitigating the existing currency risk inherent in an international portfolio of equities or bonds and seeks to add returns within client defined constraints and objectives.

Why Currency Overlay?

International investors can treat currency risk in three ways:

• Ignore currency risk. The easiest option since it requires no action. In addition, zero-sum game theory suggests that over the very long run, currency returns might not matter. However, an international portfolio that ignores currency risk may generate random returns. Such returns are not acceptable in traditional asset classes such as equities or bonds, and there is no reason why investors should accept them in currencies.

• Passively hedge. This is easy to implement. The forward sale of foreign currency only needs a willing broker and negates the currency risk. However, passive hedging reduces the benefit of international diversification by removing the currency component, which intrinsically contains the correlated aspect of international investments. Passive hedging can also have high costs, in the carry on the forward positions and their rollover, and the cash flow implications of rolling over those forward positions.

• Use active currency overlay strategies. An active currency overlay adds value and, when combined with a reasonable choice of benchmarks, can reduce the overall risk of the portfolio without overly diluting the diversification benefits.