Pound increasing in value against the dollar

Anx

The pound’s increase against the dollar has me slightly concerned as 60% of my investment is in the S&P. Is it worth adopting a strategy to mitigate any losses a rising pound might have? How would someone take advantage of an increasing pound v the dollar.

masonic

You can buy a currency-hedged S&P500 ETF, such as GSPX.

I started hedging the week after the Kamikwasi budget and switched back to unhedged in late January when the pound had recovered to 1.24 USD, banking about a 10% gain vs unhedged. The pound is currently 1.26 USD and I wouldn't want to gamble on the future direction of travel. It was a one-off for me making the best of a financial disaster.

Long term trend:

Swipe

I don't consider currency fluctuation a concern until it's time to start drawing down on my investments.

southone

FED put US rates up once our interest rates go up on Thursday things may level out

TheGreenFrog

I don't really think about currency exposure when it comes to equity investing - at least not any more.  Buying a hedged ETF or fund means you give up some return and over the long term that will hurt.  I owned a hedged and unhedged version of the same equity fund for 9 years - which was long enough to realise that hedging equity funds was pointless.  If I was worried about currency exposure I would question first whether I should reduce exposure to the equity investment in question.  

aroominyork

You could theoretise that when a country is 'doing well' is stock market will rise and its currency will strength, and when a country is 'doing poorly' is stock market will fall and its currency weaken, so unhedged UK investors in overseas markets get a double win or a double whammy when converting back to Sterling, and by hedging you remove the currency factor and your gain or loss is solely determined by the stock market's performance. Maybe, if you are approaching retirement and plan to liquidate and buy an annuity, that is something to consider alongside reducing equity exposure. But generally I think that currency hedging just adds cost which, over years, will add up. 

masonic

aroominyork said:

You could theoretise that when a country is 'doing well' is stock market will rise and its currency will strength, and when a country is 'doing poorly' is stock market will fall and its currency weaken, so unhedged UK investors in overseas markets get a double win or a double whammy when converting back to Sterling, and by hedging you remove the currency factor and your gain or loss is solely determined by the stock market's performance. Maybe, if you are approaching retirement and plan to liquidate and buy an annuity, that is something to consider alongside reducing equity exposure. But generally I think that currency hedging just adds cost which, over years, will add up. 

When you invest in assets - whether that be equities, commodities, gold, etc - their price is determined based on the market's view of their intrinsic value and is not tied to any particular currency. If a currency strengthens or weakens, then that must drive a revaluation sooner or later (aka local currency inflation/disinflation). Adding hedging to real assets is simply currency speculation. If you want pure exposure to your underlying assets, then you would not currency hedge.

Albermarle

masonic said:

aroominyork said:

You could theoretise that when a country is 'doing well' is stock market will rise and its currency will strength, and when a country is 'doing poorly' is stock market will fall and its currency weaken, so unhedged UK investors in overseas markets get a double win or a double whammy when converting back to Sterling, and by hedging you remove the currency factor and your gain or loss is solely determined by the stock market's performance. Maybe, if you are approaching retirement and plan to liquidate and buy an annuity, that is something to consider alongside reducing equity exposure. But generally I think that currency hedging just adds cost which, over years, will add up. 

When you invest in assets - whether that be equities, commodities, gold, etc - their price is determined based on the market's view of their intrinsic value and is not tied to any particular currency. If a currency strengthens or weakens, then that must drive a revaluation sooner or later (aka local currency inflation/disinflation). Adding hedging to real assets is simply currency speculation. If you want pure exposure to your underlying assets, then you would not currency hedge.

Maybe being 50% hedged and 50% not, would not be currency speculation?
More a case of hedging your bets ?

masonic

Albermarle said:

masonic said:

aroominyork said:

You could theoretise that when a country is 'doing well' is stock market will rise and its currency will strength, and when a country is 'doing poorly' is stock market will fall and its currency weaken, so unhedged UK investors in overseas markets get a double win or a double whammy when converting back to Sterling, and by hedging you remove the currency factor and your gain or loss is solely determined by the stock market's performance. Maybe, if you are approaching retirement and plan to liquidate and buy an annuity, that is something to consider alongside reducing equity exposure. But generally I think that currency hedging just adds cost which, over years, will add up. 

When you invest in assets - whether that be equities, commodities, gold, etc - their price is determined based on the market's view of their intrinsic value and is not tied to any particular currency. If a currency strengthens or weakens, then that must drive a revaluation sooner or later (aka local currency inflation/disinflation). Adding hedging to real assets is simply currency speculation. If you want pure exposure to your underlying assets, then you would not currency hedge.

Maybe being 50% hedged and 50% not, would not be currency speculation?
More a case of hedging your bets ?

I noticed that at one time HSBC Global Strategy was hedging to the tune of about 30%. I found that a bit of a head-scratcher.

Nebulous2

It may be that most of the rise has happened already. From the Truss and Kwasi low it has climbed quite a bit. It seemed stuck at $1.24/ 25 for a while, but it has now broken out of that. 

Significant issues for the dollar include the debt ceiling and worries about banks. If they can weather those there may not be a great deal more gain for the pound. 

wmb194

Nebulous2 said:

It may be that most of the rise has happened already. From the Truss and Kwasi low it has climbed quite a bit. It seemed stuck at $1.24/ 25 for a while, but it has now broken out of that. 

Significant issues for the dollar include the debt ceiling and worries about banks. If they can weather those there may not be a great deal more gain for the pound. 

In recent years the dollar has strengthened against lots of currencies so you regularly hear the talking heads on Bloomberg and CNBC wondering about whether it will weaken. You have to take all FX forecasts with a massive pinch of salt but the recent consensus has been that the USD probably weaken across the board somewhat but they cannot see sterling getting much above 1.30.