According to Stephen Gilmore, global emerging markets strategist for the firm, the currency indexes may provide investors with highly correlated returns to the local equities market with lower volatility. He pointed out that on February 27, when the S&P 500 index was down about 3.5% and the Shanghai stock market fell almost 9%, the AIG-EMFXI index fell about 0.2%.
“Despite all this noise about market volatility and position unwinding, this particular index has been very stable. It’s fallen a little bit but not much,” said Gilmore. Based on historical data from AIG Financial Products, the risk-adjusted return of AIG-EMFXI benchmark index averaged 7.9% from June 1998 to December 2006 with a Sharpe ratio of 1.33.
The family of indexes comprise a benchmark index based on 19 currencies; three regional indexes covering Asia, central Europe, and Latin America; and 20 individual currency sub-indexes.
The currencies are the Argentine peso, Brazilian real, Chilean peso, Colombian peso, Mexican peso, Chinese yuan, Indian rupee, Indonesian rupiah, Korean won, Philippine peso, Taiwan dollar, Thai baht (which is not included in the benchmark index), Czech koruna, Hungarian forint, Polish zloty, Slovak koruna, Israeli shekel, Russian rouble, South African rand and Turkish lira.
"The investor universe has moved significantly into emerging markets in recent years, but the array of index-based opportunities for EM exposure has not kept pace,” said Joseph Cassano, president of the financial products subsidiary of New York-based insurance and financial services firm American International Group (AIG). “We are confident that the AIG Emerging Markets Foreign Exchange Index is going to help fill that void very effectively.”