WITH INSTITUTIONAL ASSET MANAGERS INCREASINGLY looking worldwide for sources of return, it seems like a no-brainer that they would pay more attention to currency risks. But most U.S. firms still leave their portfolios unhedged. “In the United States we have found that very few institutional investors have currency hedging programs in place,” says Michael DuCharme, senior currency strategist at Seattle-based investment adviser Russell Investments, which provides such programs. “We find that people in the United Kingdom, Europe, Asia and Australia are much more aware of these currency effects.”

Many U.S. asset managers have looked at the dollar’s movements over the past decade and concluded that “there is no point in hedging because over time it’s kind of a wash,” says Alan Kosan, head of alpha investment research at Darien, Connecticut–based advisory shop Segal Rogerscasey. Kosan’s firm and other specialists in currency risk don’t share that view.

James Wood-Collins, CEO of U.K.–based Record Currency Management, says that just five years ago U.S. pension funds would have had a strong bias toward U.S. equities and used the Standard & Poor’s 500 Index as their primary benchmark. But more recently, many U.S. asset managers have substantially increased the level of global stocks in their portfolios, so their currency exposure is far higher. Jay Love, Atlanta-based partner at investment advisory firm Mercer, says his company’s surveys of U.S. institutional investors clearly show that “there is a significant movement away from U.S.-centric investments toward more-globalized portfolios.”

According to Wood-Collins, whose firm has $32.5 billion under management: “We generally find that an international equity manager’s job is to be expert at equities. They all have different models, but relatively few equity managers would claim to be currency experts.”

Firms like Russell and Record offer two basic currency management programs to institutional investors. One is passive hedging aimed at reducing the currency exposure risk of a particular portfolio. If a fund manager is heavily invested in Europe, for example, the currency manager would sell euro forwards to reduce the risk. The second option is investing in currencies themselves as a separate source of excess return. For many years there’s been a debate about whether foreign currency constitutes a separate asset class. But even if that argument never gets settled, buying a basket of foreign currencies is now like investing in equities and bonds.