Falling pound, buy ftse?

mears1

Hi, to all you money aficionados
does a falling pound mean it's a good time to buy vanguard's ftse uk all share index trust now? thanks 

dunstonh

does a falling pound mean it's a good time to buy vanguard's ftse uk all share index trust now?

Sterling has already fallen.  It would require it to fall further for the exchange rate influence to continue.  And it would only really affect the large cap side. ie. FTSEE100. It would have a lesser effect on an all share fund.

And remember, that when Sterling increases, that benefit will be reversed on large caps.

JohnWinder

Can anyone point us to the data that relates the pound’s value to the ftse, please. And if it were predictive, could we rule out other factors which might affect the ftse, were the pound to continue its current direction? And the pound hasn’t fallen against the yen, I think. So are we talking about a trade weighted index fall, or a fall against one of the dollars?

InvesterJones

JohnWinder said:

Can anyone point us to the data that relates the pound’s value to the ftse, please. And if it were predictive, could we rule out other factors which might affect the ftse, were the pound to continue its current direction? And the pound hasn’t fallen against the yen, I think. So are we talking about a trade weighted index fall, or a fall against one of the dollars?

For FTSE all share per OP I think it's impossible to determine causation - there's such a range of companies who have interests both in the UK and abroad. If it was just the FTSE 100 then that used to have quite a proportion of companies who earned their money outside of the UK so a relatively weak pound was good for them.

But more likely it's an indirect effect - pound strength being an economic indicator and also itself indirectly linked to interest rate decisions which might in turn affect valuations of companies.

tichtich

Hi Mears. The first thing to say is that there are no easy answers. Anything you might do with your money right now has risks. You also have to ask yourself whether you're investing for the long term. Buying shares should be considered a long term investment. 

If you just want to defend your money from the pound falling against the dollar, you could buy short-term US Treasuries. I've been keeping some money in the BBM3 ETF, which holds US Treasuries with 0-3 month duration. Since you pay for it in pounds, it's effectively a way of holding dollars without paying currency conversion costs, plus you earn a couple of per cent interest. Of course, if you do this you are gambling on the pound continuing to fall against the dollar, or at least not rising. Full disclosure... I've just sold all my BBM3, and invested some of that money in UK renewable energy shares. But I still hold a significant amount of dollar cash in my SIPP, waiting for a better time to buy US shares.

P.S. This is not advice,  just saying what I'm doing. 

masonic

InvesterJones said:

JohnWinder said:

Can anyone point us to the data that relates the pound’s value to the ftse, please. And if it were predictive, could we rule out other factors which might affect the ftse, were the pound to continue its current direction? And the pound hasn’t fallen against the yen, I think. So are we talking about a trade weighted index fall, or a fall against one of the dollars?

For FTSE all share per OP I think it's impossible to determine causation - there's such a range of companies who have interests both in the UK and abroad. If it was just the FTSE 100 then that used to have quite a proportion of companies who earned their money outside of the UK so a relatively weak pound was good for them.

But more likely it's an indirect effect - pound strength being an economic indicator and also itself indirectly linked to interest rate decisions which might in turn affect valuations of companies.

FTSE All Share is dominated by the FTSE 100, so any trend would only be slightly weaker.

This all seems to be part of the general case that when you buy assets that are not strongly tied to a particular currency, those assets rise in price in said currency when said currency is subject to high inflation/devaluation. A global index fund would be a better option than a FTSE 100 tracker, and this effect is the reason why UK investors haven't seen their portfolios fall in GBP as far as those measuring in USD. It's worth remembering that those pounds and dollars have considerably less spending power than they did a year ago, so the full extent of the crash in equities is not reflected in how much your portfolio is worth in today's money.

bd10

Just had a look at weekly correlations of the FTSE100 vs GBP/USD. Ideally we'd like to see a negative correlation, but these correlations are not stable at all. At the moment it's positive as the FTSE large cap is a good hiding spot in this general market weakness and a hawkish Fed, combined with recession fears keeps the Dollar strong. These numbers change if you change the interval to daily or monthly. Another caveat: we should really consider a GBP Index just like the USD Index. Think the BoE had one for a while but think that's been discontinued.

Personally I am staying away from considering FX as key factor to invest or not. I am more interested in beta and alpha to market or benchmark.

masonic

bd10 said:

Personally I am staying away from considering FX as key factor to invest or not. I am more interested in beta and alpha to market or benchmark.

Indeed. The value of the shares making up the index will tend to fluctuate more than the exchange rate.