safer investments for rising pound

newbie84

i hold a few american trackers and funds which have exposure to usa. however the pound is rising now and the gains from the pound to usd is dropping. when the pound dropped 20 percent them funds risen

however id like to cement them gains. im looking to sell them and then put that money into a fund or market which doesnt have such exposure to usd

any suggestions? i read the ftse 250 has less exposure than the ftse 100

dunstonh

How do the US trackers fit with your wider portfolio?
How are your management decisions affecting the efficiency of a passive portfolio?

Seems to be that you are chasing returns and that is rarely a good idea.

newbie84

dunstonh wrote: »

How do the US trackers fit with your wider portfolio?
How are your management decisions affecting the efficiency of a passive portfolio?

Seems to be that you are chasing returns and that is rarely a good idea.

ive had the hsbc american trackers for a few years. the way I see it.. this 20 percent gain due to drop in pound was unusual but nice. it is dropping now so its not nice to see them dwindle. i was thinking to bank them quick gains and buy back in when the pound rate normalised

of course we dont know when that will be. however i dont see the american index rising 20 percent that fast. i hope that makes sense where im coming from

ruperts

It's an interesting one because anything like this would normally be considered market timing and therefore a bad idea for most people. But every now and again a situation comes along where the outcome seems so intuitively obvious that it feels foolish not to try and benefit from it. The large fall in the pound seems like one such scenario to me. It feels inevitable that the pound will make up much of the lost ground, and therefore foolish to keep money in dollar denominated investments if investments of equal quality can be bought in pounds.


Of course, this could easily be a classic amateur investor mistake. If it is so obvious then why aren't the analysts getting paid the big bucks already placing their bets on it? It could easily go the other way. And that's how I talk myself out of it.

AnotherJoe

As Rupert points out, if it was "inevitable" that the pound would go back to where it was (where it was when? 2015? 2014? 2004? 1994?) then currency dealers would have already acted on that and it would be within a fraction of that right now. So the fact it hasn't, shows that the majority don't share your opinion.

Not to say you are wrong, just to point out its not the certain thing you believe.

If you wanted to put your money in something that wasn't affected by the dollar then you'd have to find a fund that invested only in businesses that dealt in the U.K. Very difficult. For example if they exported at all, then as the pound rose their exports would be harder to sell, and the amount they earned would fall.

So you'd be left with businesses that were rekativeky small. Maybe FT350? but it's just a matter of degree, ultimately everything is intertwined, imports, exports, U.K. consumer confidence all associated with exchange rates to one degree or another.

Or just sell up put it in cash and wait until your powers of predicting future exchange rates tell you another fall in the £ is coming. In which case if you know that much speculate in currencies rather than indirectly in companies.

Glen_Clark

Why do you think the pound will rise?
As far as I can see, the problems which caused it to fall (eg. Brexit, Current Account Deficit) have not been solved.

atush

I am certainly not expecting it to rise, what with all the uncertainty over what Brexit will bring.

talexuser

I hardly think our level of national debt and future worse trading conditions than now (ie higher tariffs) is a recipe for an ongoing strong currency. Inflation and a race to the bottom of the currency wars seems the only way out we have, since everything else promised has failed.

bigadaj

Who knows, the pound may well strengthen, though it obviously depends on what currency you compare against, it will no doubt rise against some and fall against others.

Those who seem convinced it won't rise have presumably factored that into their current or more probably investment strategy?

Part of the reason for near negative interest rates across most of the developed world since the gfc has been the need to ensure your currency wasn't too string and so uncompetitive. Brexit seemed to solve that problem for the uk in one fell swoop.

However there are headwinds in all major economies, trumps election has been a shock to the us, increasing uncertainty in a similar manner to Brexit. The eurozone is unstable, particularly Italy but much of Southern Europe is still economically unstable. Teh Japanese are desperate to ensure the yen doesn't strengthen with consequent effects on a very export based economy, though their efforts have had limited effects.

My opinion is that sterling will slowly strengthen over the coming months but there won't be any dramatic movement one way or the other. Just keep diversified geographically and by asset class, though I'm underweight on most government debt and bonds due to the level of borrowings, very low yield and real risk of capital loss.

ruperts

The pound has dropped 18.5% against the dollar since 2015, when the Brexit fear and emotion began to take hold. Before that it was quite steady all the way back to 2009. Nothing fundamental has changed since then other than Brexit, and Brexit has been a very emotionally-led thing. I think in reality the economic impacts will be mild, certainly not enough to justify an 18.5% drop, and the history books will highlight this as a classic case of overselling based on emotion.

bowlhead99

ruperts wrote: »

I think in reality the economic impacts will be mild, certainly not enough to justify an 18.5% drop, and the history books will highlight this as a classic case of overselling based on emotion.

An alternative viewpoint would be that for quite a long time, sterling was considerably overvalued against a basket of other currencies when you consider the size of our structural current account deficit. Some economists have suggested an overvaluation of 20% or so. From day to day, things like current account deficits tend not to matter to traders and investors until they change their mind and decide that they do.

So, while the brexit uncertainty was certainly a catalyst to move the price of sterling on the world stage, some would say it was to a large extent, just that - a catalyst. Simply being the impetus, facilitating a move that was largely overdue to happen, but not causing a move out of nowhere that didn't already need to happen.

As such, now that the move has happened, if Brexit goes away or is less problematic than some speculate it will be, it doesn't necessarily mean we are going to just rebound to where we were. The 18.5% drop to which you refer (actual size depending on where you are measuring it from) may only be moving the needle to the correct place rather than having it stuck in the wrong groove 20% too high.

So, maybe a nasty Brexit experience, once it properly kicks off, will push a pound down to $1.00-$1.20 for a bit before an eventual rebound to normal. But maybe $1.20-$1.40 is the 'new normal' rather than $1.40-$1.60.