Buying dollar-denominated investments as a hedge against a weak pound

InvesterJones

Depends if you believe in mean-reversion I guess - if so, the pound is currently weak, not strong.

But if you do want to hedge against the pound weakening it's far simpler than that, just buy any fund which makes it's revenue from assets in another currency and converts back to GBP, ie if you think the dollar will strengthen vs the pound then a GBP traded S&P 500 fund (some of the cheapest kinds of fund you can find anywhere) will act as a hedge. If you think whole world will improve vs pound then a global fund would do the same job - you could go ex-UK but what little there will be from the FTSE100 will likely be international derived earnings anyway so will benefit as well.

wmb194

Why don't you just sell sterling and buy dollars? You could use Trading212 and Robinhood UK to earn c.4.5% interest. As things stand Robinhood's FX fee is almost non-existent.

https://robinhood.com/gb/en/

Linton

hallmark said:

Linton said:

Therefore the best I can do is to attempt to invest as broadly as possible and let events take their course.

This is kind of what I'm getting at though, might there not be a risk that somebody could have invested very broadly in certain respects whilst being very tied to the fortunes of sterling.  And therefore much less diversified than they think?

I appreciate the argument that if you live in the UK then to an extent you don't mind how sterling fares compared to other currencies, because all your spending is in sterling, but surely it would no longer be quite so simple if the pound hit a real crisis?

As I say though, I'm not remotely an expert, it's more that logically this strikes me as a risk not often discussed.

Maximising diversification means not being over-tied to any particular currency, sector, country, and any other factor you can think of. 

If you are invested very broadly across the world and sterling tanks against all other currencies your global investments will increase in value in sterling terms.  You are automatically hedging against a sterling collapse.