COVER STORY
Two-sided coins
Aside from working out how far their money will stretch when they travel abroad , most investors don ’ t usually pay too much attention to currency fluctuations . This may have changed last year . A Briton who threw caution to the wind and put all their money in a 100 % equity global tracker fund may have initially thought they had cause for concern by 12 October , when the MSCI World index bottomed out for the year with losses of 21.9 % – in local currency terms . However , the fall can partly be attributed to an earlier announcement by the Federal Reserve that it would continue on its monetary tightening programme , dashing hopes of an early “ pivot ”. But while this caused stock valuations to tumble , it also caused the dollar to surge against other currencies , especially the pound , which was suffering from the uncertainty surrounding Liz Truss ’ s disastrous stint in power . As a result , the world ’ s reserve currency was up 22 % on the pound at the market ’ s lowest point last year , meaning UK investors in the MSCI World index limited their losses to 9.2 %. Investors didn ’ t even have to invest overseas to see the benefits of a weak pound : the FTSE 100 derives about 70 % of its revenues from outside the UK , which helped it become one of the best-performing major global indices last year . But a basic rule of investing is to buy low and sell high . After reaping the rewards of a weak pound last year , should UK investors attempt to get ahead of any reversal in this trend by reducing exposure to the dollar ?
The horse has bolted Probably not , is the answer to that , if for no other reason than the best time to do this has been and gone . After the dollar peaked for the year on 27 September when it had risen by 26.6 % against the pound , gains were pared back to 11.6 % by the end of 2022 .
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