“The currency market is very complex”
Jannis Raftopoulos , CEO of the Berlin consulting company JRC Capital Management, on the global currency market, empirical capital market research in social networks and political disruptions
➔ | THE INVESTMENT: A young German engineer and student recently invested in leverage securities, so-called CFDs, in the euro and Swiss franc currency pair. He invested 2,800 euros, and after the Swiss central bank released the exchange rate for the Swiss franc to the euro, the investor owed his broker 280,000 euros. Is currency trading only for professionals?
Jannis Raftopoulos: No, I do not think so. Leverage products are very risky. Every investor should be aware of this. Such a catastrophe can happen at any time with comparable papers on stocks, bonds or raw materials.
➔ | THE INVESTMENT: You have been looking after institutional clients, savings banks and pension funds in currency trading and overlay management for over 20 years. How has the currency market developed during this time?
Jannis Raftopoulos: It has become significantly more complex. A few decades ago, the market served to protect companies that traded goods in foreign currencies. Today the companies are represented with production facilities in the different currency areas and do not have to hedge themselves as much. Nevertheless, currencies play a much more important role for investors. Government bonds are issued in local currencies, and foreign currencies have established themselves as an asset class.
➔ | THE INVESTMENT: And you serve this demand from institutional business. Can’t the big institute do it themselves?
Jannis Raftopoulos: We come from the research level and have been accompanying or leading projects of the European Union, renowned universities and financial institutions in the areas of capital market research for 20 years. These can be complex topics, such as a correlation analysis of numerical data and text time series to improve trend forecasts. Or how up-to-date, our scientists analyze the frequency of terms used in social media.
➔ | THE INVESTMENT: Are you checking Twitter for the frequency of the hashtag dollar and hashtag euro?
Jannis Raftopoulos: Yes, at least that’s how you can put it in a simplified way. Social networks are playing an increasingly important role and the news flow is immense. We assume that there is a correlation between the markets and the news flow. However, this development needs to be scientifically proven.
➔ | THE INVESTMENT: Are you nevertheless launching a UCITS fund and opening up to private investors?
Jannis Raftopoulos: The JRC Global Currency is based on our strategy implemented since August 2003. The fund is not a new start, but a consistent further development. You know the current challenges. There is no risk-free interest rate. Every return today must come from risk. We know our risks and our returns. The JRC fund trades the most important and most liquid currency pairs and ensures optimal decorrelation. The correlation to the MSCI World is only 0.15.
➔ | THE INVESTMENT: Can you put the quantitative model behind the fund in simple terms?
Jannis Raftopoulos: The strategy is based on a dynamic, algorithmic model portfolio. This provides impulses at different intervals and triggers trading activities.
➔ | THE INVESTMENT: Already fits. What is the average return?
Jannis Raftopoulos: Between 7 and 8 percent annually.
The interview was conducted by Malte Dreher von Das-Investment Magazin