gbp\usd affect on fund prices

Ridethewave

If you believed that the pound would continue to strengthen against the dollar(1.22 in Oct16...now around 1.35) would there be any funds/sectors that would gain an advantage or any sectors/funds to steer clear of?

John

fun4everyone

All investments/holdings held in foreign currencies will decrease in GBP value as the pound strengthens. It is another added element of risk so decide what you are comfortable with. It is possible to purchase currency hedged versions of some funds and also actively managed funds will usually have the ability to hedge as they see fit. Hedging will smooth these bumps but will usually come at a cost - kind of like an extra management fee. There is, unfortunately, not much clarity on how much precisely it will be costing usually.

Don't try and market time currency movements as unexpected events are always around the corner. Decide on your tolerance to these movements, purchase funds that meet these tolerances, and don't deviate from your strategy.

Even big UK companies in the UK on the ftse 100 for example will see sharp movements due to currency fluctuations as they are exporting/importing goods from abroad.

Linton

Gain an advantage relative to what?

The effect of the £ increasing relative to the dollar is for companies priced in $s or with a large % of their income derived from $ based trade to fall in price. Companies that purely trade in the UK, eg many UK small companies, wouldnt be affected. All other factors being equal.

It would be foolish to base your investing on foreign exchange variations - they are far too short term and unpredictable. However if you want to buy an asset such as a US fund the best time to do it is when the price is low.

jamei305

Linton wrote: »

However if you want to buy an asset such as a US fund the best time to do it is when the price is low.

Low relative to what?

I am sure there are some funds which never fall below a record high ever again. In that case high is low.

Linton

jamei305 wrote: »

Low relative to what?

I am sure there are some funds which never fall below a record high ever again. In that case high is low.

If were are talking about foreign exchange rates for major currencies, which I was, it is probably reasonable to assume any long term trend will almost always be outweighed by shorter term variations. It would be surprising if the dollar falls for ever from its current value. The implication of the OP was that pehaps one should shun $ investments when the $ price has fallen in £ terms. My point is that if one wants $ investments this is a better time to buy than the reverse.

This is rather different to buying a particular share because the price happens to be low which can more often be a seriously bad idea.

A_T

If one is convinced that sterling will rise from it's present point then one could avoid buying non-UK equities and the FTSE 100.

When one is convinced sterling won't go any higher then maybe start investing in those again.