The Lemon Fool

I've been looking to invest a bit more in my Global ETF portfolio but as pound has dropped over last week this has made Global ETFs assets more expensive. The pound fell further on Monday following May's interview over the weekend.

Perhaps I should wait or look at UK equities or fixed income instead or even hedged ETFs now the pound is so low.


Do readers think it is now a bad time to invest in Global ETfs ?

Nobody knows. Invest a little at a time and you will not be completely wrong.

GeoffF100 wrote:Nobody knows. Invest a little at a time and you will not be completely wrong.

Yes that's the sensible thing to do. Although most of the gain in my global equity ETF portfolio over the past year has been due to the collapsing pound I was thinking it could not get much lower but I suppose the pound could still go an way from here on depending on what course the politics takes.

It is unpredictable. The government looks set for a "train crash Brexit", in which case the pound will fall further. Alternatively, they may shy away from that when the time comes, in which case the pound will rise. In the meantime, they will not say. If they say that they will favour curbs on freedom of movement, business will flee. If they say they will favour trade, they fear that they will lose votes. The markets have made their judgement for now, but it could go either way.

edited for poster to add "curbs on. Raptor

GeoffF100 wrote:It is unpredictable. The government looks set for a "train crash Brexit", in which case the pound will fall further. Alternatively, they may shy away from that when the time comes, in which case the pound will rise. In the meantime, they will not say. If they say that they will favour curbs on freedom of movement, business will flee. If they say they will favour trade, they fear that they will lose votes. The markets have made their judgement for now, but it could go either way.

edited for poster to add "curbs on. Raptor

Whilst I would agree with this, I would add that other unknown/unanticipated events may be far more important in determining future exchange rates.

Nobody knows where the pound is heading. If anyone did they would keep it to themselves and become a billionaire.

I think the best thing to do is work out what various foreign currency exposures one is comfortable with and if current exposure is way out of line with that either correct or hedge. I am currently massively overweight the dollar and underweight Euros. Ideally I would like to correct that, but cannot find attractive Euro denominated bonds and don't want more equity exposure. Also I like the $ fixed income assets I am holding and don't want to sell. I probably should hedge my $ exposure, but don't really want to pay the price!

Probably a bit OT for this board.

When starting a passive portfolio, the timescales under consideration for investment are likely to be "years". The well known funds (Vanguard/Ishares) are denominated in dollars so there must be an exchange rate risk going forward - the question is, is it a favourable or unfavourable risk? What we do know is that the pound has fallen quite significantly against the dollar - possibly due to uncertainties surrounding Brexit. Hopefully, one day this will be resolved and I would imagine a recovery in the pound. As a consequence, would this not reduce the valuation of assets held in my portfolio when I come to "cash in my chips"?

Is there a way to protect against this risk - would buying a hedged passive fund (such as iShares IWDG) be useful? Ok, the costs are slightly more than the non-hedged version but only 0.1% p.a. more.

With regard to the hedging of your global ETF, I rather suspect that the true additional costs of hedging are likely to be well above 0.1%pa.

Predicting currency movements is very tricky...

Hi Hariseldon58

Is it possible you can share which holdings you currently have please?

I know you recently moved away from passive investment trackers into Investment trusts so quite keen to hear where you are invested now, thank you.

@cell

I still have a lot of passive investments.... I did reposition to a lot of investment trusts in order to add income, move from assets largely in US$ to sterling and take advantage of what I consider attractive discounts on many trusts.

I did two things that are no longer relevant, move some funds from an S&P500 tracker to US investment trusts that had value orientation and secondly take advantage of higher prices in the autumn to go to Infrastructure , bonds, property and other 'alternative' assets Investment Trusts. (IT's are a no brainer here as the closed end structure is ideal for what are less liquid assets)
This was pure market timing, I would tell anyone this is generally a bad idea !! I rarely do this, but the US move I have reversed back into the S&P500, as I felt the situation has now changed and this made a modest profit and the second motive was taking some profits and to reposition for a more uncertain outlook.

I have added a bunch of UK Equity Income style trusts, Merchants, Henderson High Income, Perpetual Inc & Growth, Edinburgh,Shires Income and Value and Income.

In addition Finsbury Inc& Growth, Law Debenture and then some trusts that have a significant exposure to the UK smaller companies, Invesco Perpetual UK smaller cos, Montenaro Smaller Cos, Blackrock Throgmorton, Blackrock Smaller cos, Henderson Smaller CosOryx International's Growth,Independent Investment Trust.

In addition some overseas trusts, eg Murray International was a discount for a while, some aimed at outright growth, smaller companies and some aimed at income.

One can sell an ETF at or close to NAV and buy a trust at a good discount, I am not afraid of doing the reverse if the trust discounts close significantly.
I will not go into further detail as it would be off topic and I will see if I can add a post on the strategy board or the portfolio review board.