Saltus locks in profits on sterling slide

Saltus Partners has this morning taken some profits on a number of overseas positions to cash in on sliding sterling.

The absolute return house trimmed exposure to gold and other US and European assets, taking a little of its currency risk off the table.

Sterling has fallen by 5% in dollar terms over the last 10 trading days, with the pound continuing to edge lower today.

Dan Kemp, who runs Saltus' multi-asset portfolios, says while the group moved to lock-in profits on recent pound weakness, they remain bearish on the medium-term prospects for the currency.

"Sterling weakness was already a key theme in our portfolios, despite this we are concerned by this fall," he says.

"The latest fall in Sterling can be traced to an electoral poll which indicated that a hung parliament is the likely outcome of the forthcoming UK general election.

"This strong link between party politics and the value of sterling may be surprising to some, but it is a logical consequence of the credit crunch."

Kemp says the fall of the pound reinforces the group's view the key investment theme for 2010 will be the weakness of ‘safe haven' assets such as government bonds.

"The fall in sterling is simply an expression of the market's concern that the UK Government will fail to grasp the nettle of spending and will embrace higher inflation instead, thus eroding the value of sterling assets," he adds.

"Sterling's decline has been accompanied by a sharp jump in government bond yields as bond holders demand greater compensation for the risk of inflation."

Kemp says Saltus continues to favour US, German and Asian assets over those in the UK.