Trying to protect large investors, such as pension funds, from currency fluctuations is a tough business. Record (REC) seems to have been caught out in the final quarter of its full year to 31 March 2017.
Shares in the currency hedging business slumped nearly 14% to 40.50p on Friday. The decline came as the company revealed it has lost five clients and been told that a $1.2 billion mandate is also to be terminated.
The roughly £90m business finished the financial year with its highest ever assets under management (AUM) equivalents of $58.2bn. 'Equivalents' means the firm does not actually handle any of its clients assets.
Windsor-based Record offers a range of strategies to try and protect its clients from violent moves in currency markets. Its passive hedging strategy, which makes up the largest part of the business, seeks to eliminate the impact of currency movements in its clients’ portfolios when denominated in foreign currencies.
Chief executive James Wood-Collins says 'net flows into hedging mandates were positive by $0.4 billion in the quarter despite the previously announced termination of passive hedging clients representing $0.6 billion'.
Another client reduced its multi-product mandate by $900m. Record also states that no performance fees were earned for the quarter.
With Donald Trump in the White House, trying to hedge global currency portfolios appears to have gotten much harder. But that could conversely play into the company's hands, given its specific expertise.
Globally, monetary policy is diverging and currency risk and volatility have been highlighted starkly, according to analysts at Cenkos. This point appears to be fundamental to the broker's ongoing 'buy' recommendation on the stock. But it should be noted that Cenkos remains one of the company's nominated advisers.
Despite the share price fall today investors have done well since the start of 2016. The stock has rallied 54% during the past 12 months. There is also a potential 3.9% dividend yield on offer, based on the 1.6p payout expected for the full year to 31 March. That would be the company's first payout increase in several years.