Investors should keep a close watch on their currency diversification in order to minimise the effect that currency volatility can have on returns, according to the CIO of Geneva-based independent asset manager Stanhope Capital, Christophe Karpiel.
In his latest fortnightly investment bulletin, Karpiel said the group has re-evaluated its exposure to GBP for sterling mandates. An initial exposure of 50% in the spring was revised upward to 55% but has recently been pushed even higher to 60%.
‘In the last few days we have reviewed the underlying currency exposure for these portfolios to ensure the sterling exposure is nearer to 60%.’
‘It seems to us that Brexit risks are perhaps being ‘diluted’ a bit and sterling looks good value with respect to PPP (purchasing power parity).’
The British pound is not the only currency to have risen, as the euro is showing a 7% appreciation against the US dollar and Japanese yen over the past three months.
The investment committee at Stanhope Capital has also reviewed the currency exposure for euro mandates, which now have a euro exposure of 60% and a balanced exposure to other currencies for the remaining 40%.
Speaking to Citywire Switzerland, he said: ‘The US dollar trend may have reversed so we think it could now stagnate a little. There is no interest in having too much of the US dollar in the portfolios.’
‘To minimise currency volatility we have reduced the size of the bets we have outside the reference currency of our portfolios and try to have more balanced exposure for the currencies that are not the reference currencies.’
In terms of the big currency moves in the euro, he explains that the European and US markets have achieved similar performance in local currency terms, but European equities are close to double that of the US when viewed in US dollar terms.
‘This not only impacts investors’ returns, but also the overseas earnings of companies.’