UK Investment Trusts and Capital Currency Risk

[raven]

Hi,

With regard to non income focused UK investment trusts, that hold baskets of assets mostly in non UK holdings, is it fair to say that currency risk is not particularly significant? I am not too interested in dividend income here, and focusing on capital growth over a long holding period, say 10 to 20+ years. I have holdings in a few investment trusts already and also ETFs (mostly US or global, and some euro small and mid cap). Due to our stupid penal tax regulations, I'm considering halting any further additions to the ETF positions. The kind of funds I'm considering would be BG US Growth, Smithson, Allianz Tech, Scottish Mortgage, Montanaro European Smaller Companies etc. ie the holdings in these funds would be largely non-UK, even though the fund would be denominated in UK Sterling.

I'm thinking that if Sterling is weak against the euro at a given time, the fact that the fund is denominated in Sterling would be offset by the holdings being in US dollar or euro, or other global currency. Is this thinking mostly correct? Eg. if the fund hypothetically performed exactly as per say the MSCI Benchmark, then the conversion from Sterling is not so relevant?

Fees and costs in sterling would have some impact I expect, but limited.

Any thoughts?

Thanks!

 

[RedOnion]

Correct, so long as the trust itself doesn't have an fx hedging strategy in place. I'm pretty certain some of them do so you'd need to read their documentation.

If not, your only fx concern is on conversion on transfers in/out.

 

[raven]

Correct, so long as the trust itself doesn't have an fx hedging strategy in place. I'm pretty certain some of them do so you'd need to read their documentation.

If not, your only fx concern is on conversion on transfers in/out.

Excellent point, thanks, I had not thought of hedging, they are largely focused on UK investors after all.
I will check on that. Thanks, very useful to know.

 

[raven]

Interesting article here on the subject of IT currency hedging for anyone who might be interested:

Brexit: how exposed are global trusts to a volatile pound?

With currency markets likely to be turbulent tomorrow analysts at Stifel have ranked global investment trusts' exposure to sterling.

citywire.co.uk

TLDR, most don't hedge. Some can technically, but generally don't.
Some hedge with foreign borrowings, which I expect is fine for Irish investors.