How to hold cash in an international currency basket?

[tug7]

I have an investment strategy for new money & it involves putting new money into equities over an extended time period due to current valuations. I already have this money & a looking at what to do with it in the meantime.

I have little faith in the UK economy nor sterling given brexit & do not want my money in sterling. I also anticipate rising interest rates with an adverse effect on gilt prices.

I have looked at short term bond funds but the examples that I have looked tend to hedge back to sterling.

What is the best way to hold an international basket of currencies in such a way that it does not have significant equity nor interest rate risk which can then be slowly transferred to my selected equity funds?

[Dod1010]

Simple answer is to buy the likes of Unilever, BATs and Royal Dutch Shell. That way you get exposure to the US Dollar (the currency for oil) and a whole selection of other currencies (the emerging market ones being mostly linked to the Dollar as well)

Just because those companies are listed on the LSE and pay dividends in sterling does not mean they are dependent on sterling.

Dod

[tug7]

OK but that negates my idea of putting the money into the market over a period of time. I would be introducing the money in one large lump.

[Dod1010]

My post was a bit tongue in cheek but I guess if you go to a currency dealer they will be able to help but I must say it seems to me that you are then taking on two risks, the first being exchange rate changes and the other stock market fluctuations. Trying to time the market is not a good idea in my book. You will lose as often as you gain.

Dod

[tug7]

I would argue that I am reducing one risk. If my intention is to buy an international basket of equities and want only equity price movement risk - and to exclude currency risk - then it makes sense to hold the currencies that the holdings use now. I would thus be insulated from any global equity price movement cause by currency fluctuation.

I was hoping for a better solution than a currency dealer or a foreign currency bank account! I am not looking at just dollars but rather a global currency basket to match a global investment strategy.

The world has changed. It is no longer possible to conduct international business deals in sterling that have any significant duration. The international business community no longer regard sterling as a reliable predictable currency & neither do I. US Dollars, Euros & International Baskets rule the day.

[Alaric]

If my intention is to buy an international basket of equities and want only equity price movement risk - and to exclude currency risk - then it makes sense to hold the currencies that the holdings use now. I would thus be insulated from any global equity price movement cause by currency fluctuation.

For taxable accounts, TD Direct allows you to hold cash in several different currencies, corresponding to the markets on which they will deal shares for you. I don't think it pays any interest and if you are starting with a sum in sterling, you get the exchange rate on the day you transfer to the other currencies.

[hiriskpaul]

Not sure where you have been looking, but the majority of bond ETFs are unhedged. If you don't want to take duration risk take a look at iShares Ultrashort series. These do contain investment grade corporate bonds, which you may not want, but annual management charges are very low a 0.09%. There are different tickers depending on what currency you want to invest in. So if you want USD exposure, the GBP denominated Ultrashort USD ETF is ERNU. If you are investing pounds it is usually best to pick the version of the ETF priced in pounds otherwise there is a risk that your broker will gouge you with FX fees when you buy and sell. Your currency exposure will be the same regardless of the currency the ETF is priced in, provided you don't pick a hedged ETF.

If you don't mind a little duration risk iShares do a variety of longer dated bond ETFs. If you are after a specific duration just take a weighted position between 2 ETFs either side of what you are looking for.

Take a look at ishares.co.uk and filter by fixed income.

[tug7]

I am surprised that the iShares Ultrashort is nearly 30% in £ Sterling, about the same in € euros & only 5% in US$.