How To Protect Against Sterling Falls

Third_Age · 9 October 2016 at 9:40AM

As far as I can see none of the funds like Vanguard Life invest in short duration bonds exclusively. The largest holding in the Vanguard Life 20 is, I think, the "Global Bond Index Fund" and third the "UK Government Bond Index Fund" The Global Fund which I suspect I hedged back to Sterling. Neither fund protects against sterling fluctuations.

I don't think that a Vanguard Life fund is the answer that I am looking for and that is why the short duration global bond funds plus a global tracker that I feed into have appeal.

AnotherJoe · 9 October 2016 at 9:57AM

Surely any global bond would hedge against Sterling fluctuations by its very nature, e.g.global? If they hedged global bonds back to Sterling there would be no point having global mighta s we'll just invest in Sterling bonds.

Anyway you seem to have worked out your strategy now which AIUI is put 100% into a short term global bonds and then over a period you feel comfortable with, either on a defined schedule or as you feel the market makes it preferable,, sell that and buy into one or more global equity funds until you are 100% (or less?) invested.

Have you decided if you'll do it on a fixed schedule or ad hoc ?

fireblade28 · 9 October 2016 at 10:12AM

Use it for forex trading and make use of the fluctuations?

On the serious note theres not much you can do. If you want to invest abroad there will always be fluctuations. You could always invest in home equities so that £1 still means £1 but you are kinda limiting yourself to growth potential.

Sterling is unlikely to fall much more in my opinion but in the long term it may not regain to be the powerhouse it once was. Hard to predict.

Third_Age · 9 October 2016 at 10:12AM

I am not sure that Another Joe & I think that "hedged" means the same thing. To me it means that the currency movement is taken out of the equation. If the pound either fell or rose against the currency that the Bond is issued in would not change the value of the holding in the fund that I held in sterling. This is exactly what I don't want. I am willing to accept currency risk at this time. Am I wrong in my understanding of what "hedged" means ??????

I am not decided on exactly what to do. I know what I am going to do unless someone comes up with something better - that is not to say that I find my solution ideal but then little in the real world is ideal.

I am certain however that I want as little as possible to be in the UK/Sterling for the immediate (probably 3 years minimum) future. I think that I prefer a global solution exUK at this time.

AnotherJoe · 9 October 2016 at 11:21AM

I dont think I wrote down what I meant

What I meant was, if you buy a global bond, it wont be hedged to Sterling, because if it was there would be no point in hedging, buy a purely UK one invested only in UK companies.

In a truly global bond, if sterling falls, the fund would rise. And vice versa.

Third_Age · 9 October 2016 at 11:35AM

AnotherJoe.

Thank you - we do mean the same thing by "hedged".

I think that the gilt holding in Vanguard LifeStrategy 20 despite being a Global Fund is hedged back to Sterling.

AnotherJoe · 9 October 2016 at 11:55AM

OK, have to admit I"ve never looked at what Vanguard do I'd assumed (bad I know) it was a global fund so you took the rough with the smooth, cant see the point of a global fund otherwise. have you looked ata graph of it adn what happened to it on teh days there were significant falls in the dollar. 24th June and this past week for example. If there are significant rises its not hedged.

One other thing - your post says "How To Protect Against Sterling Falls" but in post 15 you write "
I am willing to accept currency risk at this time."

Is there a "not" missing from that?

Third_Age · 9 October 2016 at 2:12PM

What is going on in my head doesn't necessarily translate well to what I say or write - put it down to age.

I am willing to accept currency risk on a global basis but not to have all my currency risk in sterling. I thus do not want my funds hedged back to sterling. I don't really see any logic in tracker funds that are hedged.

Linton · 9 October 2016 at 2:23PM

Third_Age wrote: »

That is one of the answers that I am considering but it means that I am 100% fully invested in the stock market in one go which is what I am trying to avoid.

You dont have to do the same thing with all your money. Divide the pot into tranches, ideally with different objectives. So you could perhaps keep 1/3 in cash for short term use, 1/3 in global equity for long term investing and 1/3 in global bonds. For the long term investing part it doesnt matter what sterling does near to BREXIT - over the next many years sterling will go up and down several times, as will the stock market. Its the long term return that matters.

Thrugelmir · 9 October 2016 at 3:39PM

Initially invest the funds into a money fund (pension wrapper). You'll then at least gain the benefit of tax relief on the contributions. While exposing the money to minimal risk.

How To Protect Against Sterling Falls

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