February 2, 2023

Experts have said the weakness of sterling can be used to DIY investors' advantage
Investors have seen the pound fall to an all-time low against the American dollar, as fears mount that the new Government is pushing public debt in Britain to unsustainable levels.
However, DIY investors need not panic, as experts have said the weakness of sterling can be used to their advantage. This is because a lowly pound works in favour of a portfolio that is invested across global stocks.
For example, the S&P 500, America’s benchmark index, has fallen by 23pc in dollars this year. However, losses stand at just 4pc in sterling terms.
The Telegraph looks at how investors can maximise their returns when sterling is weak.
While price movements in sterling mirror sentiment towards Britain’s economy, its stock market does not move in tandem.
Steve Clayton, of the broker Hargreaves Lansdown, explained: “The UK market is very international in its nature; most big companies listed in London actually earn most of their revenues and profits overseas. Those will be worth more in sterling terms as a result of the slump in the pound.”
This also translates into dividends. When the pound falls, it boosts companies’ reported earnings when they are converted back into sterling. This means that investors will receive a foreign exchange boost in company payouts.
Overall, this has kept London’s benchmark index, the FTSE 100, afloat this year. Despite weakness in the foreign exchange market, the index has remained flat this morning. It has dropped 2pc in the year to date, compared with a 5pc fall in global stocks in sterling terms.
Jason Hollands, of the broker Bestinvest, highlighted the TB Evenlode Income fund for savers looking to invest in the British stock market. Its portfolio collectively made just 15pc of its revenues in Britain, and 36pc in the US, he said. The fund has returned 31pc in the past five years, offered a yield of 2.9pc, and charged investors a fee of 0.87pc.
While the British stock market becomes more attractive, it may be wise to avoid paying an additional premium for American shares.
Mr Hollands explained: “The strength of the dollar is flattering sterling valuations on funds that invest in American stocks held by British investors.
“Unless you believe the dollar will just keep on getting stronger and stronger in perpetuity, at some point this trend will unwind. Using weak pounds now to heavily buy expensive US shares carries additional risk and the better opportunities are probably closer to home.”
There are some corners of the stock market that are perceived as relative “safe havens” during periods of volatility.
Wealth preservation trusts are investment funds that aim to protect money against market falls and inflation. Popular trusts include the Capital Gearing Trust, the Personal Assets Trust and the Ruffer Investment Company.
The trusts invest in a mix of gold, stocks, bonds and cash. However, investors must be willing to park their cash in these funds for at least a few years.
So far this year, only Ruffer has grown savers’ money, up by just 1pc. Capital Gearing has fallen by 1pc, and Personal Assets is down by 4pc. Over five years, the trusts have delivered returns of 34pc, 36pc and 27pc respectively.
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