Specialist currency fund managers are learning to be more nimble in their investment approach to avoid their bets getting caught up in the general tides of market sentiment.

Moves in the foreign-exchange markets, particularly among major currency pairs, have been increasingly driven by shifts in investor sentiment of late--a widespread symptom of global markets' seemingly permanent state of crisis. When doom and gloom prevail, havens such as the yen and the Swiss franc tend to benefit, while the Australian and New Zealand dollars often notch up gains in periods of optimism.

The Aussie dollar is perhaps the best example, running a correlation with the S&P500 stock index of around 78%, according to Citigroup.

HSBC's in-house index, which measures the extent to which this so-called risk-on, risk-off theme is driving the markets, is also currently at an all-time high.

This phenomenon is a boon for investors seeking to use currencies as a proxy for other markets. But it has created headaches for some specialist currency managers, who pride themselves on offering a diversified source of returns, distinct from other assets like stocks. They don't want to leave their funds' returns at the mercy of all too frequent shifts in investor attitudes.

"For specialist currency fund managers, one of the challenges is how they put on views and don't get see-sawed [by the markets]. They are having to think more creatively to find ways that are not as correlated," said Nick Spencer, director of consulting at investment firm Russell Investments.

Spencer added that such managers are shunning the traditional route of buying or selling emerging-market currencies, for example, only against the euro or the dollar. Instead, some are choosing more intra-regional trades such as the Polish zloty against the Hungarian forint. They are also taking fewer big, core directional bets on the currency markets.

"We would rather play relative-value macro trades than take outright positions... You don't want to be a fund that is purely driven by risk-on, risk-off," said Adrian Owens, an investment director managing fixed-income and currency-based hedge funds and related strategies at GAM, an independent active investment manager with $60.2 billion in assets under management.

JPMorgan Asset Management is also focusing on relative-value trades. "What we have been focusing on is not about risk-on, risk-off. We have been looking more at relative-value trades such as the Norwegian krone against the Swedish krona or trades between the Australian, Canadian and New Zealand dollars," said Jonathon Griggs, head of currency management at the investment-management firm, which managed $94 billion in currency exposure as of end-June 2011.

Owens also said that basket trades are one way of controlling currencies' correlation with other asset classes. For example, while he is upbeat on the prospects for the Mexican peso, trading it against the dollar gives it an uncomfortably strong correlation with U.S. equities.

That means he prefers to own it against a combination of the Australian and New Zealand dollars, the Swedish krona, the euro and the U.S. dollar. By adjusting the weights, it is easier to control the correlation with the S&P 500 and the volatility of the position can also be reduced, he said.

Fund managers are also being more careful about how they trade as well as what they trade, to avoid succumbing to risk-on, risk-off swings. "If you try to be tactical you are going to get caught up in the ebb and flow of the market. We look to take smaller, more medium-term strategic positions to try to weather the intra-day and daily moves," said Griggs.