Currencies

We model currency movement based on a long-run trend to fair value (as determined by our adjusted purchasing power parity measure) and the path of relative inflation and interest rate differentials (i.e. real rates).

To help investors assess currency impacts, we calculate exchange rate impacts in both hedged and unhedged terms and translate to any reference currency as necessary.

The systematic component is the impact of currency hedging versus the USD. It is simply the difference in nominal cash terms between the two currencies and is subtracted against the local return to get the hedged USD terms. The high US rates relative to most developed countries means that non-US investors must pay a 'premium' to hedge US returns to their local currency. Thus, the high US rates are cut back to near local levels of return in Euro, Yen and CHF terms.

Exchange Rate Effects in USD terms

Currency

Currency

5-Year Valuation (%)

5-Year Valuation (%)

5-Year Systematic (%)

5-Year Systematic (%)

10-Year Valuation (%)

10-Year Valuation (%)

10-Year Systematic (%)

10-Year Systematic (%)

Currency

Euro

5-Year Valuation (%)

0.8

5-Year Systematic (%)

-2.4

10-Year Valuation (%)

1.2

10-Year Systematic (%)

-2.1

Currency

GBP

5-Year Valuation (%)

1.0

5-Year Systematic (%)

-1.4

10-Year Valuation (%)

0.8

10-Year Systematic (%)

-0.9

Currency

Yen

5-Year Valuation (%)

2.6

5-Year Systematic (%)

-2.3

10-Year Valuation (%)

2.5

10-Year Systematic (%)

-2.2

Currency

Swiss CHF

5-Year Valuation (%)

0.0

5-Year Systematic (%)

-2.8

10-Year Valuation (%)

0.9

10-Year Systematic (%)

-2.4

Currency

Can Dollar

5-Year Valuation (%)

0.8

5-Year Systematic (%)

-0.3

10-Year Valuation (%)

0.5

10-Year Systematic (%)

-0.1

Currency

Aus Dollar

5-Year Valuation (%)

0.3

5-Year Systematic (%)

-0.7

10-Year Valuation (%)

0.1

10-Year Systematic (%)

-0.3

Currency

China Yuan

5-Year Valuation (%)

-0.2

5-Year Systematic (%)

0.5

10-Year Valuation (%)

-0.4

10-Year Systematic (%)

0.6

Baskets

Baskets

5-Year Valuation (%)

5-Year Valuation (%)

5-Year Systematic (%)

5-Year Systematic (%)

10-Year Valuation (%)

10-Year Valuation (%)

10-Year Systematic (%)

10-Year Systematic (%)

Baskets

EAFE

5-Year Valuation (%)

1.1

5-Year Systematic (%)

-1.9

10-Year Valuation (%)

1.2

10-Year Systematic (%)

-1.6

Baskets

ACWII

5-Year Valuation (%)

0.4

5-Year Systematic (%)

-0.4

10-Year Valuation (%)

0.4

10-Year Systematic (%)

-0.4

Baskets

ACWI x US

5-Year Valuation (%)

0.9

5-Year Systematic (%)

-0.9

10-Year Valuation (%)

0.8

10-Year Systematic (%)

-0.7

Baskets

EME

5-Year Valuation (%)

0.2

5-Year Systematic (%)

1.9

10-Year Valuation (%)

-0.3

10-Year Systematic (%)

1.7

Baskets

Glob Gov

5-Year Valuation (%)

0.9

5-Year Systematic (%)

-1.4

10-Year Valuation (%)

1.0

10-Year Systematic (%)

-1.2

Baskets

GlobGov xUS

5-Year Valuation (%)

1.4

5-Year Systematic (%)

-2.2

10-Year Valuation (%)

1.5

10-Year Systematic (%)

-1.9

Baskets

Glob Credit

5-Year Valuation (%)

0.2

5-Year Systematic (%)

-0.3

10-Year Valuation (%)

0.2

10-Year Systematic (%)

-0.2

Baskets

EMD Local

5-Year Valuation (%)

0.3

5-Year Systematic (%)

2.1

10-Year Valuation (%)

-0.3

10-Year Systematic (%)

1.9