Protecting against exchange rate volatility

rossiuk

Hi,
I am UK based and have a diversified portfolio via a S&S ISA, with various funds focused on both the UK and overseas. With the value of the pound strengthening considerably in the last couple of weeks due to the Brexit drama, I’ve noticed that the value of my foreign funds (e.g. S&P 500 tracker) have plummeted due to being in a different currency that are now weaker versus sterling. What do people advise doing to avoid future volatile swings like this due to changes in currency? Are there such thing as funds that invest in foreign stocks but are priced in pounds to avoid this?

Linton

UK investors have benefitted from currency movements ever since the BREXIT vote. Now that the uncertainties may be clearing you would expect that situation to unwind.


Given that the UK and the £ represent a pretty small % of the world economy there is nothing worthwhile you can do to avoid the swings. You can buy hedged funds that will eliminate the c urrency effects but anyone investing in that way would be very unhappy over the past 3 years as their investments underperformed everyone elses.


The other way of reducing currency fluctuations is to invest in companies that do not have major business world wide such as many small UK companies. This limits your options considerably and you get major fluctuations from other causes such as the state of the UK economy.


On the whole currency fluctuations are a good thing in that if the currency is rising inflation generally is lower but then so are your investment returns. Conversely when the country has economic problems you as an investor are shielded by the higher valuation of your foreign holdings. This seems better than the reverse.

MaxiRobriguez

You can buy hedged funds yes.

You can increase your allocation to UK domiciled companies.

Alternatively you can accept that currency fluctuations are a part and parcel of investing. Did you complain when your funds increased in value due to GBP decreasing?