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Currency
sixpence.
Posts: 295 Forumite
Ok I am trying to get my head around this. Can anyone check these statements for me please?
1. If the pound is weak, and I buy in a foreign fund, then I buy LESS shares within that fund. Therefore it is BETTER to buy into foreign funds when the pound is strong?
2. When the pound becomes strong, these funds bought while it was weak DO NOT inscrease in value.
3. However, it is generally best to keep investing regularly regardless of what currency is doing?
1. If the pound is weak, and I buy in a foreign fund, then I buy LESS shares within that fund. Therefore it is BETTER to buy into foreign funds when the pound is strong?
2. When the pound becomes strong, these funds bought while it was weak DO NOT inscrease in value.
3. However, it is generally best to keep investing regularly regardless of what currency is doing?
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Comments
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Yes, a strong pound buys more foreign currency, or anything denominated in it, and a weak pound buys less.1. If the pound is weak, and I buy in a foreign fund, then I buy LESS shares within that fund. Therefore it is BETTER to buy into foreign funds when the pound is strong?
The changes in inherent value of a foreign fund are unrelated to currency fluctuations, but if a fund's value stays the same in its local currency while the pound strengthens then the value of your stake (in sterling terms) decreases.2. When the pound becomes strong, these funds bought while it was weak DO NOT inscrease in value.
It's generally best not to be influenced by currency fluctuations or to try to predict them, provided of course that you believe that the foreign assets are suitable for your objectives and risk tolerance. This all assumes you're talking about relatively stable currencies such as € or $, it'll be a different story if you're desperate to invest in Venezuela or Zimbabwe....3. However, it is generally best to keep investing regularly regardless of what currency is doing?
What's attracting you to investing in funds denominated in foreign currencies, given the plethora of solid options available in the UK? With all due respect, the questions you're asking suggest that this might be a bit of a leap....0 -
What's attracting you to investing in funds denominated in foreign currencies, given the plethora of solid options available in the UK? With all due respect, the questions you're asking suggest that this might be a bit of a leap....
Perhaps I'm misunderstanding your point - if the solid options UK funds you are referring to are invested globally (may not be what you were referring to?) my understanding is that the currency denomination of the fund doesn't matter - it is the currency of the underlying asset that matters e.g. per this article on Monevator
https://monevator.com/currency-risk-fund-denomination/
If you buy a fund denominated in GBP that invests in overseas assets you’re still exposed to the currency risk of the underlying assets (unless fund hedged to GBP)0 -
I suspect I was misreading Eskbanker a bit. In any case the link may be helpful. This article on Monevator may also help answer the OP question
https://monevator.com/currency-risk/0 -
Yes, just to be clear I was referring to funds purchased within the UK but invested globally - as you rightly say these do still involve currency risk but are generally more straightforward for a UK investor to buy and manage, and obviate the requirement to delve into the sort of questions that OP was asking!0
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What's attracting you to investing in funds denominated in foreign currencies, given the plethora of solid options available in the UK? With all due respect, the questions you're asking suggest that this might be a bit of a leap....
Okay so my porfolio is
75% VLS 60
10% asian index ex japan
5% US mix caps
5% Japan mixed caps
5% China
So for the "rouge" 15% (the last three listed) I decided I wanted to further diversify the VLS, even though I know the VLS is a complete fund, because it is SO UK focussed. I am new to investing and quite young (turning 30 this year and am comfortable with a mediumish - maybe slightly high - risk factor) and I researched currencies but just wanted to double check I'm doing stuff okay. It's frustrating when the pound dips but I guess you just have to ignore and keep putting in every month...0 -
Ok I am trying to get my head around this. Can anyone check these statements for me please?
1. If the pound is weak, and I buy in a foreign fund, then I buy LESS shares within that fund. Therefore it is BETTER to buy into foreign funds when the pound is strong?
Well, to be pedantic , you buy fewer, not less
And it is better but do you actually have any control over what the rates are when you buy ? Probably not.
2. When the pound becomes strong, these funds bought while it was weak DO NOT inscrease in value.
Well, they may or may not increase in value in "native" currency. Whether they increase in value in Pounds depends how much much the Pound rises or the dollar falls.
3. However, it is generally best to keep investing regularly regardless of what currency is doing?
Yes, because you cannot control it, you cannot predict it and it's foolish to pretend you are able to do those things. As the saying goes it's about time in the market not market timing.0 -
So for the "rouge" 15% (the last three listed) I decided I wanted to further diversify the VLS, even though I know the VLS is a complete fund, because it is SO UK focussed...
VLS isn't that U.K. focussed. It has a 25% "U.K." allocation but that is essentially a set of global companies that happen to be U.K. domiciled. The real worry should be the over concentration in a handful of industries.0 -
AnotherJoe wrote: »VLS isn't that U.K. focussed. It has a 25% "U.K." allocation but that is essentially a set of global companies that happen to be U.K. domiciled. The real worry should be the over concentration in a handful of industries.
I'm going to respectfully disagree with this. The UK represents 6% of the global market and therefore the VLS is weighted towards the UK.
I don't think I have a problem being over concentrated in any industries
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I'm going to respectfully disagree with this. The UK represents 6% of the global market and therefore the VLS is weighted towards the UK.
I don't think I have a problem being over concentrated in any industries
I'm going to respectfully disagree with that because of that 25% most of the income those companies are earning is from outside the U.K.( as is shown by their shares rising when the Pound falls.). For example one I looked at random, Shell, 31% of their income was from Europe so it will be much less than 25% U.K.0 -
AnotherJoe wrote: »I'm going to respectfully disagree with that because of that 25% most of the income those companies are earning is from outside the U.K.( as is shown by their shares rising when the Pound falls.). For example one I looked at random, Shell, 31% of their income was from Europe so it will be much less than 25% U.K.
Ya that's the point people often make about VLS.0
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