Investors hedge FX as currency drives returns

Becoming more bullish on sterling

Currency exposure has been the main driver of gains for many UK investors this year, but managers are now turning their attention to hedging strategies as they predict further volatility in the FX market, while some are becoming more bullish on sterling.

This year has seen the pound plummet to a 31-year low after the UK voted for Brexit on 23 June, trading 15% lower against the US dollar year-to-date at $1.2521 and down 13% against the euro at €1.1795 (as at 1 December). Sterling weakness has boosted UK large caps in particular, which derive a large proportion of their profits from overseas. Holders of US equities have also benefitted from leaving their exposure unhedged, as the dollar appreciated when Republican candidate Donald Trump won the US Presidential Election in November, with his proposed fiscal policies expected to have a r...