How the sterling effect has boosted your gains from overseas stocks
The dramatic fall in the value of the pound since the Brexit vote has boosted savers’ returns from investments in foreign markets because the dollars and euros that companies earn overseas are now worth more in sterling terms.
This may have distorted British investors’ view of how foreign markets have actually performed: a boost from the depreciation of sterling could have masked poor performance from the actual assets.
The chart shows the differences in returns for investors in the US and European markets according to whether they invested in pounds, dollars or euros.
Over the past two years the S&P 500 index of the largest American companies has returned 42pc to a sterling investor, according to FE Trustnet, the investment analyst. Over the same period the pound fell from more than $1.50 to a low of around $1.20, before recovering to $1.32. In US dollars, the S&P 500 has still performed impressively, gaining 27pc in two years.
In Europe, the gulf between returns in sterling and returns in euros has been more dramatic. Over the past two years, the Euro Stoxx 50 index has returned 40pc in sterling terms, compared with 15pc in euros.
The disparity is greater in the case of Europe because, while the pound has recovered somewhat against the dollar recently, no such recovery has taken place against the euro. In two years it has fallen from €1.42 to today’s rate of €1.13, slightly above its recent low of €1.09.
The European market’s recovery from the financial crisis has lagged behind the US, and growth has been far slower. However, European shares are now comparatively cheap.
According to a global survey of fund managers by Bank of America Merrill Lynch, the eurozone is, after banks, the sector about which professional investors have most dramatically turned optimistic relative to the past 15 years.
The greatest disparity between sterling and local currency returns is seen in Japanese shares. Japan’s Topix index has gained 44pc in sterling terms, compared with just 15pc for a local investor in Japanese yen.
Japan has struggled to escape the deflation that followed the collapse of an asset bubble in 1992. Now, a greater degree of political stability, and the continuation of the economic recovery programme instituted by Shinzo Abe, Japan’s prime minister, are giving investors hope.
As in Europe, the fund managers polled in the Bank of America survey are now far more heavily invested in Japan relative to the past 15 years.
Steelworkers risk being exploited by financial advisers preying on highly valuable “final salary” pensions, experts are warning. More than 100,000 members of the British Steel scheme, one of Britain’s largest, have until next month to choose what happens to their savings after the former sponsor, Tata Steel, offloaded the plan as part of a radical restructuring.
However, thousands of current and former steelworkers have instead requested to transfer out of final salary arrangements entirely.
The most recent figures show that
Tata Steel workers are said to be under pressure to transfer their pensions