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Currency moves drive half of UK returns

Currency moves drive half of UK returns

Half of the returns scooped up by UK investors in the second half of last year came from currency differences, as British investors saw the performance of their portfolios outpace the US.

Natixis collected data from 564 ‘balanced’ model portfolios between July and December, which found currency-related returns for UK investors were often higher than the returns delivered by the assets themselves.

According to the asset manager's portfolio barometer, around 50 per cent of the total returns came from UK portfolios having a large allocation to non-sterling assets.

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These portfolios had an average performance in excess of 13 per cent, overtaking US portfolios which had returns averaging around 8.2 per cent.

The pound embarked on a downward spiral after the Brexit vote at the end of June, meaning global UK companies, which have much of their earnings overseas, saw a pick up in profits.

Last month, the head of Old Mutual Global Investors Richard Buxton said he thought sterling had not yet hit rock bottom and predicted it could slide as low as $1.15.

James Beaumont, international head of portfolio research at Natixis, said: “UK advisers may not always take into consideration the impact that currency plays within a portfolio, but in 2016 investors who held non-sterling assets strongly benefited as the pound depreciated following the Brexit vote in June 2016.”  

The research, which is based on findings from portfolios offered by advisers and wealth managers across the US, the UK, France, Italy, Luxembourg, the Netherlands, Singapore, and Latin America, also found equity markets drove performance in the second half of last year.

Natixis Global Asset Management found that UK equity performance contributed to 11 per cent out of the total of 13.5 per cent performance, with 9 per cent coming from overseas equity. 

Matthew Riley, who heads up the portfolio research team at Natixis, pointed out that currency moves last year were the highest since 2008, which had a huge impact on the surveyed portfolios. 

For example, a UK investor with unhedged US equity exposure would have gained an extra 19 per cent return in 2016 due to the depreciation of the pound versus the dollar. 

For Eurozone equities, this would have been around 16 per cent, and for Japanese equities this would have been 23 per cent. 

These findings come amid warnings from some investment professionals that some advisers are ignoring the impact of currency on portfolios.