Investments  

Strong pound triggers foreign investment warning

The head of investment analysis at Bristol-based Hargreaves Lansdown said: “Most investors need to be made aware there is an element of currency risk when investing overseas, which can have both a positive or negative effect on returns.”

His warning came after sterling broke through the 1.7 barrier last week following a clear message from Bank of England governor Mark Carney that UK interest rates could rise sooner than expected.

Markets had previously priced in an interest rate rise for the second quarter of 2015.

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Mr Troue said: “If investors have a strong view on whether this rise is the start of a longer-term trend for a stronger pound, there are fund groups that offer hedged share classes of funds denominated in foreign currencies.

“However, currency markets are notoriously hard to predict and we would rarely advise investors to invest in hedged funds.”

Matthew Beesley, head of global equities at Henderson Global Investors, said most equity fund managers investing overseas consider currency fluctuations and pick stocks to offset them.

He said: “Fund managers tend not to consider the shorter term spikes in currency, or whether a few cents are added onto the dollar. We are more concerned about longer term trends – for example, whether the UK stays in Europe if next year’s election results in a Conservative government and referendum on staying in the EU in 2017. These sort of events have much more lasting implications for currency relationships.”

Background

The pound climbed to its highest level against the dollar since August 2009 early last week, reaching $1.7011. It rose to a 20-month high against the euro at €1.2563.

Analysts warned that further tapering of quantitative easing in the US last week, bringing the Federal Reserve’s bond purchasing programme down by a further $10bn to $35bn a month, and Fed chairman Janet Yellen’s “dovish sentiment” could push the pound up further in coming weeks.