How FX can offer protection

Equity and other financial markets have gone through periods of stress, but Neil Jamieson of ETF Securities, says sterling investors could have used FX as a protection strategy.

The rationale for looking at foreign exchange as a diversifier is it can provide returns that are uncorrelated with other asset classes such as equities, bonds, property and commodities that typically form the core of investor portfolios. A further factor lies in the underlying liquidity of the market. The foreign exchange market is the most liquid market in the world with a reported average daily volume of $4trn in April 2010 according to the Bank for International Settlements (BIS). The market dwarfs both fixed income and equities. Daily global equity market turnover, for example, i...