Weekly Comment IconLast week saw the pound at its weakest ever point compared to the currencies of UK’s main trading partners. By Thursday, sterling was at a 31-year low against the US dollar, with investor confidence challenged yet further by Friday’s so-called ‘flash crash’ which saw sterling drop 6% in a matter of minutes in early-Asian trading, before regaining some of its losses.

For international investors (especially those with a specific base who hold assets in other currencies), such movements, if established, have a significant impact on returns. Currency markets are of course notoriously difficult to predict, even by experienced traders, but they can provide opportunity as well.

Weekly Comment Chart

 

Global asset allocators, such as our own investment team, must take care to have a sensible view on this complex area. Currency movements can be a key driver of portfolio returns – as seen this year. Whilst many observers might consider the prediction of currency movements a ‘fools errand’, we would be advocates of having a currency view, even if that meant taking no risk.

Brexit appears to be the dominating force in the continued weakening of sterling, best observed by the Bank of England’s action to reduce interest rates. For sterling investors wishing to take advantage of the longer-term opportunities created by other currency relationships, careful diversification of currency holdings within a portfolio can be rewarding – whether that be through a globally invested discretionary portfolios or multi-asset funds that take an intended international view on the holdings they use.

The potential for a divergence in monetary policy amongst the major economies as we head into 2017, exemplified by Federal Reserve tightening in the U.S., could see currency movements continue to be a significant influence on portfolio returns for some time.

We take care to consider currencies as an asset class, their influence can enhance positive returns and also provide protection against periods of downturn – for many investors US dollars and Japanese yen have historically been considered a safe haven in periods of volatility.

Our clients seek our expertise in managing funds and portfolios, run and denominated in a range of currencies that include the US dollar, pound sterling and South African rand, hedged into other currency classes such as euros and Singapore dollars where appropriate.

The effect of currency considerations can be seen in one of our GBP denominated global funds, that has recently elected to take profits on FX as Sterling has weakened, by modestly reducing its US dollar holding.

Looking forward, commodities currencies could also be well placed to those with a bullish outlook and expecting a rebound in oil. The looming spectre of a Eurozone breakup has serious implication for the euro, and we watch with interest as gold potentially reasserts itself to assume the mantle as the ultimate reserve currency.

Our investment team discusses macro issues on a weekly basis and will continue to look for opportunities to drive returns – while protecting our clients assets – in this intriguing market environment.

 

Currency Consideration

 

Terms & Conditions

TERMS & CONDITIONS

By using or accessing any part of our website, aside from the Terms and Conditions page, you agree to be legally bound by those terms and conditions. We may amend these terms and conditions at any time without notice. Your continued use of our website following any change will constitute your acceptance of such change. Our full terms and conditions can be found at https://www.mitonoptimal.com/uk/terms-conditions/

Regulatory Information

The MitonOptimal Group (“MitonOptimal”) of companies is authorised and regulated in their respective jurisdictions, as required by law. For further details, you may visit the regional sites via https://www.mitonoptimal.com.

MitonOptimal UK Limited is part of the MitonOptimal group of companies. MitonOptimal UK Limited is registered in England and Wales No. 09138865. Authorised and regulated by the Financial Conduct Authority.

Risk Warning

Potential investors should be aware that our models and funds may make investments in equities, bonds, cash, commodities alternative strategies and commercial property. Investors should be aware that there is no guarantee that investments will go up.  Past performance is no guide as to future performance. As the price of units and the amount of income distributed or accumulated may go down as well as up, the Manager has no obligation to redeem units at the subscription price originally paid. If you are in any doubt about the content of these terms and conditions, you should not enter the site and consult your stockbroker, bank manager, solicitor, accountant or professional investment advisors.

If you have any questions or concerns about our website please email us at [email protected].

Please indicate below, whether you accept/do not accept our terms and conditions of use.

Address

MitonOptimal UK Limited
Royal Mead
Railway Place
Bath
BA1 1SR
UK

Phone

t: +44 (0) 1225 632 250
f: +44 (0) 1225 439 442

Regulatory Information

MitonOptimal UK Limited is part of the MitonOptimal group of companies. Registered in England and Wales No. 09138865. Authorised and regulated by the Financial Conduct Authority.