We present a post-sample study of currency fund managers showing thatalpha hunters and especially alpha generators are more effective inproviding diversification benefits for a global equity portfolio thancurrency managers who earn beta returns from popular style strategies ormanagers with high total returns regardless of their source. Our studyis unusual in that we measure the alpha from currency investing using asimple factor model rather than based on total excess returns, that weuse rankings of currency managers from an earlier published study andexamine their performance truly out-of-sample, and finally that our datareflect actual trades and returns earned by these managers, so the dataare not contaminated by the usual biases in hedge fund databases. Ourresults suggest that a factor model approach to analyzing currency fundreturns, coupled with the revealed degree of alpha and beta persistencein our data, offer institutional investors with large equity exposure auseful tool for improving their performance.
