Sterling brexit?

Kenhere

I have some cash in NS&I which is not needed short term. To hedge/protect against the pound weakening after Brexit which may be the better option to move the cash into:
1. Vanguard global tracker
2. USD cash
3. Gold EFT
4. Other?

With option 1 I already have this so would be increasing my equities allocation. I am OK to risk bad luck timing i.e. possible fall in global markets if that should happen in the next couple of months. In that case I would just stay invested. What I don't want to do is see my cash allocation in GBP lose overseas purchasing power overnight (my future spending needs may be in either EUR, or possibly NZD or AUD, not sure so not practical to move my cash to any of those yet)

bowlhead99

There's no clear solution because it's all about your perception of the risks. The biggest risk is calling it wrong and shifting your UK cash and investments from UK to overseas assets and currencies when you will only find out with hindsight whether you should have been doing the exact opposite.

Option 1 gives you exposure to a whole basket of global currencies but it also gives you investment risk in top of the risks you're already taking with your existing holding of that fund. If you don't need the cash in the short term -only the medium or long term - it could be OK.

However, note that the largest peak-to-trough drawdown in the FTSE All-World within the last decade-and-a-bit was 58% in USD terms - from 2007 to early 2009.

If there was a 40% global equities crash at the same time as GBP strengthened 20% rather than weakened - due to a softer-than-feared Brexit - how do you feel about waiting for those losses to unwind over the next five years?

Option 2 takes away investment risk and just gives you a purer exposure to one currency. You would be using the USD as a proxy for the basket of global currencies you eventually want, but the USD does get stronger or weaker against the other ones all the time. So, it could be feasible for GBP to weaken but also have USD weaken relative to the others and you still lose money. Or in a better-than-worst case scenario Brexit, GBP may strengthen instead of weaken, and USD weakening at the same time could see your $1 go from being worth almost 80p to the 50-70p range.

Option 3 can help sooth inflation and currency risks and an ETF avoids the large spread between buy price and sell price that you get with physical gold when buying it from a dealer and selling it back again; but ETFs introduce counterparty risk. And sometimes gold price moves a quite different direction from what you were hoping for, by significant amounts.

Kenhere

Thanks bowlhead99. All good points and accepted. I can see that there is a chance that GBP could strengthen if Brexit is softer or better than currently assumed.

My dilemma and reason for wanting to hedge a bit against GBP falling is because almost all my other assets such as property are immoveably fixed to GBP. So if GBP strengthens I will see a benefit there, but if it weakens and my cash is also in GBP, all the eggs are in the GBP basket.

Thrugelmir

Kenhere wrote: »

I have some cash in NS&I which is not needed short term. To hedge/protect against the pound weakening after Brexit which may be the better option to move the cash into:
1. Vanguard global tracker
2. USD cash
3. Gold EFT
4. Other?

No concerns about the trade war between the USA and China?

bowlhead99

Kenhere wrote: »

My dilemma and reason for wanting to hedge a bit against GBP falling is because almost all my other assets such as property are immoveably fixed to GBP. So if GBP strengthens I will see a benefit there, but if it weakens and my cash is also in GBP, all the eggs are in the GBP basket.

You could consider using a spreadbet provider to bet an appropriate amount on the USD (or some other currency) rate against GBP by a certain date, e.g. end of June, end of September - either with a standard spreadbet or a call option.

If you used a standard spreadbet and were trying to hedge a large amount of assets such as a property, you would have a lot of money on risk either deposited in advance or waiting on the side to meet a margin call, and a 'stop loss' could be expensive if the rate spikes and catches you out but then settles to a better level.

A call option on the currency pair has the advantage that you know the most it can cost you for your 'hedge' even if it turns out that you bet the wrong direction, but the bet will stay open even if markets are volatile between now and then. The problem is, the more volatile the markets are, or the longer you are from the end point, the more expensive the cost of the option - so there's a real risk that you are right about the direction of the market movement but you don't actually break even on the bet because the movement wasn't drastic enough.

masonic

JamesAdams wrote: »

Hope sterling stays strong.

Stays?

https://www.macrotrends.net/2549/pound-dollar-exchange-rate-historical-chart