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For Big Returns, Think Small
12 Mar 2012 EDT - CNBC.com
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Smaller G20 currencies have outperformed the big four all year, and this strategist sees the trend continuing.

Admit it - you've been obsessing over the euro's tiniest moves this year. But if you glance up for a minute, you might see that you've been watching the wrong currency.

"We obsess about EURUSD on a minute to minute basis; when not doing so we debate whether JPY is headed for the collapse that has been expected for many years, but never quite achieved. The truth is that being long the “G20 smalls” and short the G4 “bigs” has provided a consistently better risk return profile so far this year," says Steven Englander, head of G10 currency strategy at Citigroup.

Englander has analyzed the average (unweighted) performance of eighteen currencies - the Australian, New Zealand, Taiwan, Singapore, and Canadian dollars, the South African rand, the Norwegian krone, the Swedish krona, the Mexican, Argentinian, and Chilean pesos, the Indonesian rupiah, the Indian rupee, the Russian ruble, the Turkish lira, the Brazilian real, the Chinese yuan, and the Malaysian ringgit - and measured their performance against the average of the dollar, euro, yen, and British pound.

"The smalls have the highest return relative to their realized volatility so far this year," Englander says. "No G10 currency cross had a better return relative to realized volatility."

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