Another slump in the pound puts spotlight on overseas-focused funds
Growing political uncertainty and a slew of poor economic data saw the UK pound fall to two-year lows below $1.20 early on 3 September.
The pound also fell below the €1.10 level once more ahead of a House of Commons vote that could see a no-deal Brexit outlawed by MPs. It also followed the worst figures for new orders in the UK construction sector since the global financial crisis.
For investors in investment trusts the weakness of sterling has important implications for their returns. Trusts with a high proportion of UK-listed stocks are on the back foot while those with high exposure to international stocks are enjoying a material positive tailwind.
Using data from the Association of Investment Companies (AIC), analysts at investment bank Stifel have ranked the sensitivity of international funds according to their non-UK exposure. Although most of the trusts don’t publish their currency exposure themselves, the team at Stifel has used each trust’s geographic exposure as a proxy.
Top of the list with 100% international exposure is the £300m Henderson International Income (HINT), managed by Ben Lofthouse, which is mainly invested in continental Europe, the US and Asia Pacific outside Japan. The fund’s top 10 holdings include Coca-Cola, Microsoft, Nestle and Verizon.
Close behind is the £7.5bn giant Scottish Mortgage (SMT) with 97% international exposure and a list of top 10 holdings which includes Amazon.com, Ferrari, Netflix and Tesla.
Some trusts actively hedge their currency exposure in order to minimise the impact of foreign exchange volatility. Among the most active is the capital preservation trust RIT Capital Partners (RCP).
According to Stifel, RIT’s sterling exposure as at 31 June was 56% of net asset value (NAV) even though its geographic exposure was just 5% of NAV at the time. By comparison its US dollar exposure was 16% compared with a geographic exposure of 34%.