Mark Dampier: Asian currencies have global appeal
Saturday 27 June 2009
Now some of you could argue that I am at least a year too late in looking at a global currency fund, as currency movements have become increasingly important to investment of late. My apologies, but, to be honest, I really hadn't felt there was much on the market worth highlighting. That seems to have changed now with the launch of an offshore Global Managed Currency fund from Schroders.
The fund's aim is to preserve the global purchasing power of your money. It is fully global and will not be constrained by having to invest alongside any index. Portfolio turnover is likely to be low as this is not a super-active trading fund, rather more one for longer term strategic investments.
Now you might suppose that the preservation of global purchasing power is not that important and, in some ways, it rather depends on how much money one has. However, may I suggest any doubters ask the unfortunate people of Iceland how they feel about their decimated currency – I suspect foreign holidays will be off the agenda for quite some time for most of them.
Unlike many other currency funds, the Schroders fund is fully global and casts its net wider than simply the major world currencies such as the US dollar, Swiss franc, Euro, Yen and sterling. Perhaps 25 to 30 years ago such a restricted mandate was perfectly reasonable, as there was very little else you would want to buy, but the emergence of the developing world is changing all that.
The banking crisis – or, more accurately, the Western banking crisis – has meant that currencies of developed world nations look less attractive. The world is turning upside down and no longer will the developed world be able to do exactly what it wants. The economies of nations such as China, India and Russia look stronger on a long-term view and their currencies should benefit as a result. Consequently, the Schroders fund will be putting money into Asian and emerging market currencies where it sees fit.
Don't make the mistake of regarding this as a "cash" fund – it won't necessarily show a consistent return in all conditions. Returns are likely to be lumpy because that is just the nature of currency markets; a currency can stay over- or under-valued for a long time, but when it moves it tends to happen suddenly. Investors can make – or lose – a lot of money depending on which side of the move they're on, which is why it is important to invest with people who know what they're doing.
The Schroders team was set up by Geoff Blanning, who is head of emerging markets. He and the fund manager, Clive Dennis, used to work together in commodities and have years of experience in analysing political and economic factors that affect currency.
Right now, there is very little differential in terms of interest rates among the developed nations, and the drivers of currency movements are varying all the time. The Schroders team are constantly on the lookout for signals that might change the value of a currency.
When volatility is low (like now) they tend to invest neutrally and the portfolio will be fairly close to the benchmark. However, when volatility increases and opportunities become more prevalent, they can move decisively into the areas they believe have the most promise.
The UK's economic woes and the massive borrowing plans of our Government have made sterling look vulnerable. The only saving grace is that we're not alone – most of the world's major currencies look ugly right now. However, given the almighty mess that the UK finds itself in, it is not hard to see sterling suffering further falls over the next couple years. This new Schroders fund should appeal to those looking to enhance the purchasing power of their capital on a global scale.
Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent
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