T3 Index has launched a benchmark that measures the performance of the world’s eight largest emerging market exchange rates, allowing investors to gain exposure through a single trade.
The E8 index provides access to Chinese yuan, South Korean Won, Indian rupee, Mexican peso, Brazilian Real, Russian rouble, Turkish lira and South African rand.
Denominated in US dollars, the index invests in liquid three-month FX forwards. In a rising interest rate environment, the short-dated FX contracts are seen as preferable over long-dated bonds by minimising duration risk in the portfolio and limiting potential capital losses.
Weightings of the individual currencies are assessed on an annual basis and determined by a combination the BIS triennial central bank survey of FX turnover (50%), import and export statistics (25%) and GDP data published by the World Bank (25%).
T3 Index CEO Simon Ho said the E8 index overcomes many barriers to investing in emerging markets.
“This Index provides a simple, liquid and transparent way for global investors to gain exposure to the core eight EM countries in a single trade,” he said.
As the first step in the development of a family of EM FX indices, T3 plans to add regional sub-indices as well as volatility series over the benchmarks.
“The E8 Index fills a much-needed gap in the market as investors increasingly want to capitalise on the opportunities presented by EM economies”, said John Bennett, general manager, global institutional sales and research at National Australia Bank.
Data for the E8 indices is provided by Tullett Prebon Information, part of TP ICAP.
T3 Index is a specialised provider of research-based volatility benchmarks across asset classes. As part of Australian investment manager Triple3 Partners Group, the firm manages the Triple3 Volatility Advantage Fund - the only VIX-focused fund in Australia - and oversees an options-based volatility overlay for Grant Samuel’s Global Equity Advantage Fund.