Currency Woes

The FTSE All World index is up 15.14% this year. However, if you are a Sterling investor, that same index is only up 7.11%. That’s mainly because 65% of the components are US companies, and the Dollar has lost 9.8% against the Pound in 2025. Of course, you could buy the hedged version of the index, but that costs money, and you don’t make gains when the Greenback strengthens.

Welcome to the currency conundrum, so what to do? Most UK-based wealth managers simply ignore the problem by buying domestically. That may work for bonds if Rachel Reeves doesn’t pull a Liz Truss and blow up the Gilt markets in her November budget. For equities, though, it’s been costly and UK stocks have underperformed the US by more than 200% over the past fifteen years.

Another possible solution would be to take a view on the currency. Trends are easy to spot, and surely all those highly trained professionals working in the finance industry must be able to add a bit of value somewhere. However, the track record suggests otherwise, and if exchange rates were predictable, we’d also know what Donald Trump would do next.

That leaves hedging half of our currency risk, which cushions losses when Sterling strengthens but still lets us benefit when it weakens. It’s not perfect, particularly if there were structural reasons for Sterling to appreciate for a very long time. However, almost ten years on from Brexit, the prospects of Britannia ruling the world once more seem slim at best.