Funds in other currencies, tracking other countries' markets

Jim_B_3

Hi All,

I'm quite interested at the moment in sticking my money into funds tracking foreign markets; essentially, some relatively safe tracker type funds that (in the event of continued sterling collapse) will hedge me against that sterling drop.

The overseas tracker type funds I find, though, tend to indicate that their currency is sterling. I find myself wondering if I've simply misunderstood and they mean the currency I put in and get out will be sterling, and the fund is in a foreign currency.

As an example, let's say that I put it into a US tracker fund and the US stock market held exactly level whilst sterling dropped 10%. I'd expect the dollar value of that fund to be the same, but when I cash out to have 10% more sterling than when I started.

Can anyone point me towards such things?

Ta.

sabretoothtigger

I think its more a case of the fund returning higher dividends relatively (in foreign currency), so you would not see a material increase in the returns until a year had passed

Jim_B_3

So long as the shares are purchased in their local currency value it's all good for me; I'm after an alternative to simply buying a shedload of foreign currency and hiding it under the mattress (or getting a foreign currency bank account).

sabretoothtigger

You'd have to ask someone in the industry but I think the basic fund value would be in pounds.
I dont understand how that works when they must own parts of these foreign companies but I guess its a bit like owning a foreign operating company quoted on the ftse

Any company with significant international operations and earnings is well worth a look I reckon like standard chartered and probably quite a few others are more invested in asia then the uk so at the very least they'll receive more earnings as the pound drops, a hedge effect?

Most uk banks on the other hand have massive foreign debts from all the funding they took. As the pound falls their debts get larger still. This is what happened to iceland I think except they borrowed more then the gdp still rbs has a 2 trillion bill potentially, worrying

http://www.bbc.co.uk/blogs/thereporters/robertpeston/

Inevitably, sterling has fallen - to its lowest level against the Yen since 1971 and to its lowest against the US dollar since March 2002. For what it's worth, Rogers believes sterling will approach parity with the dollar.
The connection between sterling and the health of our banking system goes like this.

Our banks have colossal overseas liabilities; they've borrowed huge sums abroad. According to Bank of England figures, the gross foreign currency liabilities of British banks are around £4,400bn (having quadrupled over a decade).

Of course the banks all have matching assets. But the problem is that the assets tend to be illiquid, hard to sell. Whereas the lenders to the banks can often ask for their money back at relatively short notice.

StevieJ

I have some Japanese funds, they are more or less breakeven at the moment, although the market has halved. The manager is either a genius or the fund is in Yen and converted back to sterling.
I think you will find that even some FTSE companies have foreign currency exposure eg Shell and BP where oil is priced in USD.

purch

If you want to control the FX exposure yourself (or at least have some control) then there are ETF's that track in non-GBP currency, usually USD or EUR.

You cannot totally control the exact exchange rate when you buy and sell, as that will be at the whim of the broker, but other than that the exposure to FX will be there.

There are also some Unit Trusts/OEIC where the manager does not hedge the FX exposure (such as Aled Smith of M&G) but you would have to do some in-depth research to identify those.

Jim_B_3

Okay, sounds like the general thought is that putting it into shares in foreign markets, such as M&G's American fund, will be a bit of a hedge against a plummeting pound. Obviosly, should the pound shoot up against foreign currencies, I'd lose out, but that's the game we play.