The typical allocation split is half in strategic views and one quarter in each of tactical and quantitative, but it does vary with the market environment. “We rank views from plus four to minus four. If we have no strong views and there is high uncertainty, we may avoid taking macro views and focus on tactical trading instead, placing more emphasis on charts, positioning and short-term sentiment,” explains Crosnier.

Lowly correlated sub-strategies

The strategy also tries to provide some diversification and decorrelation between sleeves. The correlation between the three strategies has averaged around 20%, but it moves around and has sometimes been near zero.

Diversification benefits can sometimes arise simply because the three buckets may sometimes hold opposite positions. “The strategic and tactical strategies could be on opposite sides of a trade because they have different time frames. The quantitative strategy could be on the other side of a trade held elsewhere because it is model based,” explains Crosnier.

And in certain market conditions, some strategies work better than others. Amundi do not expect all three strategies to always be positive. For instance, in 2024 as of October, macro trading was positive but quantitative trading was negative. “It is great if all three are profitable but not unusual for two of the three to be profitable, and the split changes with the market cycle and configuration,” says Crosnier.

Performance attribution can be divided by the three strategies and even drill down to individual currencies. The Yen’s mega downtrend has not been a huge contributor in recent years. “It is very unlikely that one currency pair such as Dollar/Yen would explain all the returns, and this would not be a good outcome unless we had a very strong view. We can have some large positions, but we ensure they are well balanced in terms of risk,” says Crosnier.

Risk and optimisation

The strategy can be opportunistic in using its risk budget, with the maximum risk typically triple the minimum. The Fund is normally managed within a 2-6% volatility target unless market volatility is very high. In extreme markets, there are also regulatory guardrails for 99% confidence interval Value at Risk under the UCITS rules. Portfolio construction also employs Black Litterman techniques to build an efficient risk allocation amongst the currency pairs.

Improving opportunity set of macro dispersion

In common with many global macro traders, Amundi found it harder to extract value when synchronised QE central bank intervention dominated liquidity and markets. “But recently post-Covid, deglobalisation, divergent monetary policy, and different trade patterns between dollar, commodity and emerging market blocs, are throwing up more opportunities. We cannot treat Latin America as a bloc as there are more idiosyncratic and specific stories in Mexico and Brazil,” says Crosnier.

The investment universe includes everything liquid in developed markets and emerging markets.

Actively managed carry trade

A winning theme recently has been an actively managed carry trade including Latin American longs such as Mexican Peso and some high yielder in emerging market currencies, and funding with low yielding currencies mainly in Asia. “This has recently been held for around two quarters, but we did actively trade around positions,” says Crosnier.

Volatility and trends

Slightly higher volatility in some currencies has enhanced opportunities for active FX trading while Amundi’s systematic models have benefited from a return of trends in the market.

Central banks

Though QE has ended in most countries, central banks are still important players through intervention in some markets and monetary policy elsewhere. “Some trades, such as long Japanese Yen, have been in line with central bank action, while others have taken a contrarian view versus central banks or excessive market expectations,” says Crosnier. “In October 2024, the Fed funds rates were briefly pricing in one or two jumbo 50 basis point cuts, and we took the opposite side of the trade, wagering on a stronger dollar versus the Euro. The pricing swiftly reversed on stronger economic datapoints,” Crosnier recalls.

Hit rates and asymmetry

Overall win/loss ratios are around 60% and the mechanisms for cutting risk vary between the buckets: “In tactical trading we expect to have a stop loss as well as looking at win-loss ratios. In macro it is more about reassessing the market scenario, and cutting risk is not as mechanical as on the tactical trading side,” explains Crosnier. Asymmetry in payoff profiles can be achieved through stop losses or options.

Option instruments

The team have a sophisticated and active approach to trading options. “The strategy uses both plain vanilla options and more exotic ones such as knock-ins or knock-outs. Our use of options partly depends on levels of volatility and on our market expectations. If there is disruption at a particular point of the volatility spectrum, we may look for a different expiry,” says Crosnier. The Fund might sell covered options though it would not systematically short options.

Risk, uncertainty and binary events

Crosnier has lived through unique events that caused extreme volatility. For example, in 2015 when the Swiss Franc was de-pegged, causing large losses for some leveraged carry. During times of maximum uncertainty, such as the Brexit vote in 2016, Crosnier worked through the night and recalls: “This was a very binary event and pure uncertainty. We can always apply a probability to a risk but not to uncertainty”. Sometimes Amundi will reduce exposure around such events, but on other occasions it may be worth taking a view. In October 2024 Crosnier judged volatility around the US Presidential election to be at attractive levels: “The US election was a binary event, and we used options to take a view on one side of it”.

Synthesising signals

Amundi considers a range of indicators in a subjective way, which can be categorised into three broad groups: macro, valuation and technical. “There is no fixed score for each input, as they can all influence investment decisions to varying degrees,” says Crosnier.

Broad bench of expertise

Crosnier is now based in Paris but worked in London for some 13 years, where Amundi Head of Global FX, Andreas Konig, is currently based. A team of 5-6 portfolio managers are complemented by a team of quant analysts and 3 Forex strategists: two dedicated to developed markets and one to emerging markets. Quant analysts assist with models, systematic strategies and portfolio construction optimization. Portfolio managers and strategists can share their views during the investment committee, but Crosnier has the final say in case of disagreements to determine the strategic view. Portfolio managers have some discretion to implement the strategic views in terms of timing and sizing of positions.

Sharing ideas inside the firm

There is a multilateral traffic of ideas amongst the FX team and other teams. Colleagues from the Amundi Investment Institute provide macro scenarios and currency portfolio managers design market views accordingly. Amundi’s FX team also provides inputs for other parts of the firm. “This might lead a US equity manager to follow our view, but it would also be considered in the context of their own view on diversification and correlation. For instance, a long only equity manager, Euro based, might want to leave the USD unhedged or under-hedged if they expect the dollar to offset losses during a risk off period,” explains Crosnier.

The FX team also glean insights from other specialists. FX is part of the fixed income team, where portfolio managers in credit investment grade bonds, high yield and government bonds can all be helpful. “Every morning, I attend our morning meeting with colleagues from the fixed income, credit, government bond and emerging markets teams. Overall, cross fertilisation of ideas amongst investment teams is key to forming and finalising market views,” says Crosnier.

Operational efficiency

Trades are placed in the spot markets but then need to be swapped into forwards. A team dedicated to cash and Treasury management carries this out for what are typically 20-30 individual positions. A team of 3 traders dedicated to FX spot, forward and options are based in Dublin.

A huge player in FX execution

Amundi transacts very significant amounts in spot, forward, swaps and options, for the actively managed currency strategies and hedging for various funds. The dealing desk makes limited use of algorithms as most trades are still executed via voice. Amundi has access to around 40 brokers, ECNs and other platforms. Transaction Cost Analysis is used for mandatory best execution reporting.

Strategies and vehicles

Amundi Funds Absolute Return Forex comes under the umbrella of Amundi’s fixed income platform, which is separate from the hedge fund platform hosting other funds profiled in The Hedge Fund Journal. Beyond the UCITS, most assets in pure FX are in mandates or dedicated overlays. The FX team also actively manages the FX sleeve of some larger funds and mandates. Global macro and active global fixed income strategies can also take account of the team’s currency views. Passive currency hedging is also run for institutional clients, calibrating optimal hedge ratios to reduce portfolio volatility.

Thought leadership and quantitative strategy development

The Amundi Investment Institute publishes core macro and markets views, and the quant team also publishes on topics such as factor investing, portfolio optimisation and construction. Inside Amundi Funds Absolute Return Forex, systematic strategies currently only applies carry and trend models, but Amundi is also developing more advanced quant strategies. “They will need to be validated internally and could then be implemented,” says Crosnier.