Sterling Fall

Biggus_Dickus

dividendhero wrote: »

Impossible to predict day to day movements of sterling (unless of course you're in the Government with inside info) but long term I see sterling weakening

JRM for PM;

...go Jacob!

aroominyork

Alexland wrote: »

Generally yes but it might be worth some currency hedging so you are not totally exposed to an unexpected strengthening of the pound. I never seem to get any support around here when I suggest it but even the very popular (and forum favourite) mostly passive Vanguard LifeStrategy fund series includes bond currency hedging to reduce volatility.

I agree that hedging is worth considering. I recently posted about whether to hedge an S&P tracker and the consensus was that hedging would be gambling on currency. I see it the other way: I want to track the S&P and not have its movements influenced by GBP/USD currency movements; I see an unhedged fund as more of a gamble.

Glen_Clark

The reason the pound hasn't plummeted today is that the disagreement in the cabinet might not lead to crashing out without a deal (bad for the pound)
It could lead to another vote and staying in the EU (good for the pound)

System

aroominyork wrote: »

I agree that hedging is worth considering. I recently posted about whether to hedge an S&P tracker and the consensus was that hedging would be gambling on currency. I see it the other way: I want to track the S&P and not have its movements influenced by GBP/USD currency movements; I see an unhedged fund as more of a gamble.

If you are investing for the long term then currency hedging is pointless and expensive.

Alexland

Economic wrote: »

If you are investing for the long term then currency hedging is pointless and expensive.

I respect your right to hold that view but UK investors have benefited from a significant boost in recent years from the pound weakening. These have not been true investment returns and could so easily be reversed back out again when the Brexit situation becomes more certain. This combined with growth in market valuations may be causing UK investors to be taking more risk than they first accepted when they chose their investment strategy.

I am not proposing the whole portfolio is hedged just consider enough to balance your risk out a bit.

Alex

masonic

It's come time for me to rebalance after the recent falls and I'm planning to shift about half my US exposure from unhedged CSP1 (OCF: 0.07%) into the hedged GSPX (OCF: 0.10%). I don't consider those 3 basis points difference to be particularly expensive.

System

masonic wrote: »

It's come time for me to rebalance after the recent falls and I'm planning to shift about half my US exposure from unhedged CSP1 (OCF: 0.07%) into the hedged GSPX (OCF: 0.10%). I don't consider those 3 basis points difference to be particularly expensive.

You pay for the hedging in the performance of the fund rather than through the OCF. There is an interesting (interesting in the sense that it supports my view) article in the FT:
"Currency-hedged funds prove poor value for investors
Cheaper unhedged products perform better, shows FT research"
https://www.ft.com/content/20104c9e-58f2-11e8-b8b2-d6ceb45fa9d0

veryintrigued

Thought this was a thread about Ryan's penalty decision!

masonic

Economic wrote: »

You pay for the hedging in the performance of the fund rather than through the OCF. There is an interesting (interesting in the sense that it supports my view) article in the FT:
"Currency-hedged funds prove poor value for investors
Cheaper unhedged products perform better, shows FT research"
https://www.ft.com/content/20104c9e-58f2-11e8-b8b2-d6ceb45fa9d0

That opinion piece really misses the point. The underperformance figures they quote are directly attributable to the fall in Sterling vs the base currency of the unhedged funds. This is what should happen in a hedged fund when the hedging currency significantly weakens. The opposite will happen when the hedging currency strengthens.

AnotherJoe

masonic wrote: »

The underperformance figures they quote are directly attributable to the fall in Sterling vs the base currency of the unhedged funds. This is what should happen in a hedged fund when the hedging currency significantly weakens. The opposite will happen when the hedging currency strengthens.

Which is why i think hedging is more than pointless.

Taking that example as correct (i havent read the article) the hedging has caused underperformance when the currency weakened and therefore will cause over performance when it strengthens. The two cancelling out.

And there's a cost to the hedging which overall lowers performance whatever happens and since in the long term you cannot evade the long term change in the £/$ rate all you are doing is paying to minimise volatilty, not the end result of the £/$ change.