A Guide to Carry

Imagine every investment is a fruit tree. Some trees drop fruit while you hold them. Some cost money to keep watered. Carry is the fruit minus the watering cost.

If the tree also grows taller, great. That is a price gain. If it shrinks, that is a price loss. Carry is just what you collect, or pay, while waiting.

• Positive carryYou get paid to wait, before price changes.
• Negative carryYou pay to wait, so you need price gains to make up for it.
• The trapA tree with lots of fruit can still be expensive if watering costs are even higher.

Carry is the expected excess return from the non-price-change part of an asset. For an equity index future, fair value embeds the local interest rate and expected dividends. Holding the future is attractive on carry when dividends are high relative to the local funding rate.

That is why a high dividend yield is not enough by itself. The UK can have a higher dividend yield than Switzerland, but if UK short rates are much higher than Swiss short rates, the financed equity carry can still be worse.

• EquitiesDividend yield minus local cash rate.
• BondsLong yield minus short yield, a simple curve-slope proxy.
• FXForeign cash yield minus USD cash yield, before exchange-rate moves.

Carry is the predictable return component implied by the current term structure, income yield, or funding differential, holding valuation states fixed. It is a local expected-return proxy, not a sufficient statistic for expected excess returns.

In equities, a stripped-down futures relation gives $F_{i,t,T}=S_{i,t}e^{(r_i-q_i)(T-t)}$, so the carry on long equity exposure is naturally linked to $q_i-r_i$. In FX, covered interest parity turns the forward discount into a funding spread. In rates, the carry signal is often approximated by the slope between the position's yield and the financing rate, though a full implementation would include rolldown and duration scaling.

The dashboard deliberately keeps the measures simple and comparable. It is a screening tool: it says which markets pay you to hold exposure before spot returns, valuation changes, and risk premia do their work.

• SignalObservable, slow-moving, and mechanically tied to prices and rates.
• RiskOften earns a premium because it loads on bad states or crowded unwind states.
• UseBest read alongside valuation, momentum, macro regime, liquidity, and currency exposure.