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Russell research: FX fees are still too high
Analysis of 40,000 foreign exchange transactions finds average costs can be up to 9 times higher than estimates

Tacoma, WA — March 22, 2010 — Research from Russell Investments finds that the costs of foreign exchange (FX) transactions are higher than either investors or managers should expect in practice. This increase in transaction costs acts as a drag on the long-term return of the portfolio and can end up costing the investor as much as 2% of the portfolio's total value over a 40-year period.¹

These conclusions come out of analysis by Russell of 40,000 FX trades executed by investment managers with custodians and other foreign exchange counterparties between January 2008 and December 2009 on institutional assets totaling approximately $19 billion.

According to the research findings, the average cost of each FX transaction, defined as the shortfall from the midpoint between the bid and offer prices, came to approximately 9 basis points, which is considerably higher than the range of 1-3 basis points, which is the average cost in the FX market for the most traded developed market currencies. These findings were nearly identical to similar research Russell conducted in 2004 on approximately 36,000 trades.

"The costs of FX trading have been below the radar for far too long. The results of our analysis suggest that investors cannot simply assume that FX trades are being executed efficiently," said Ian Toner, head of commission management and currency implementation, Russell Investments. "It should be unacceptable to investors and managers when far more foreign exchange transactions are executed at prices close to the worst price of the day than at prices close to the best."

The new Russell research identifies four main features of the FX market which could potentially lead to unnecessarily high costs as well as three key areas that investors should focus on when attempting to understand the costs associated with FX execution.

"Some managers are very good at ensuring efficient FX execution, but investors need to analyze the actual trades conducted on their behalf to be sure that their FX trades are receiving the right level of attention," said Toner. "One course of action for investors to ensure efficient FX execution is to publicly state that the associated costs will be reviewed and measured. Losing 2% of your total fund value at the end of a 40-year period simply because of poor quality FX execution isn't just a rounding error."

In December 2009, Russell announced that its Agency Foreign Currency (FX) Trading program had surpassed $50 million in total savings on behalf of Russell global equities funds as well as other institutional clients. Russell was one of the first firms to offer an agency model, which is designed to cut foreign currency transaction costs through a process that is a cost-effective alternative to traditional FX execution services.

Request a copy of the research "Are your FX fees too high?"

About Russell Investments
Founded in 1936, Russell Investments is a global financial services firm that serves institutional investors, financial advisers and individuals in more than 40 countries. Over the course of its history, Russell's innovations have come to define many of the practices that are standard in the investment world today, and have earned the company a reputation for excellence and leadership.

Through a unique combination of wide-ranging and interlinked businesses, Russell delivers financial products, services and advice. A pioneer, Russell began its strategic pension fund consulting business in 1969 and today is trusted by many well-known worldwide institutions for investment advice. The firm has $176 billion in assets under management (as of 12/31/09) in its mutual funds, retirement products, and institutional funds, and is well recognized for its depth of research and quality of manager selection. Russell offers a comprehensive range of implementation services that helps institutional clients maximize their assets. The Russell Indexes calculate over 50,000 benchmarks daily covering 65 countries and more than 10,000 securities.

Russell is headquartered in Tacoma, Washington, USA with offices in Amsterdam, Auckland, Chicago, Johannesburg, London, Melbourne, New York, Paris, San Francisco, Seoul, Singapore, Sydney, Tokyo and Toronto. For more information about how Russell helps to improve financial security for people, visit us at www.russell.com.

Contact:
Kate Stouffer: 206-505-1858
Matt Burkhard: 718-875-2122




¹ The figure is based on the difference in end value over a 40-year period between an investor earning a 7.00% rate of return versus the same investor receiving a rate of return of 7.06%. The new Russell research finds that the average cost of each FX transaction is 9 basis points, which is 6 to 8 basis points higher than estimates.

Russell Investment Group, a Washington, USA corporation, operates through subsidiaries worldwide including Russell Investments. Russell Investment Group is a subsidiary of The Northwestern Mutual Life Insurance Company.

Russell Investments is the owner of the trademarks, service marks and copyrights related to its indexes.

Russell Implementation Services Inc. member FINRA / SIPC

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