Should You Be Hedging Your Currency Risk?

The returns available from successful currency management can be seductive and there is an increasing range of products open to investors who wish to try

Cherry Reynard 23 January, 2017 | 2:00PM
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In spite of confirming the UK’s departure from the single market, Theresa May’s speech last week prompted a significant rally in sterling. It was testament to the unpredictability of currency investing. Yet currency movements have had a profound impact on investor returns in 2016 and may do again in 2017. Should investors seek to accommodate currency movements in their portfolio?   

The impact of currency for investors in 2016 is not in doubt. For the calendar year, a USD investor in the MSCI World index would have seen a return of 5.32%, a sterling investor would have seen a return of 25.62%. The extraordinary political landscape was felt most keenly in currencies – the weakness of sterling, the strength of the US Dollar, plus difficulties in selected emerging market currencies such as the Mexican Peso.

When Currency Falls Mean Profit

Currency fluctuations were good news for those with a significant global bias to their portfolios, but it left the returns from sterling investments looking lacklustre by comparison. It also skewed the returns in certain global funds. It flattered those managers with very high US weightings, for example.

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About Author

Cherry Reynard

Cherry Reynard  is a financial journalist writing for Morningstar.co.uk.

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